Ervin Cohen & Jessup LLPhttp://www.ecjlaw.com
Ervin Cohen & Jessup LLP, founded in 1953, is one of the preeminent law firms in Southern California. The Firm has an extensive and diversified client base and practice. The clients of ECJ are involved in a wide variety of business pursuits, including real estate, healthcare, the garment industry, banking and finance, hotel and hospitality industry, professional services, insurance, retailing, manufacturing and distribution. ECJ prides itself in providing a full range of business related legal services to its clients at reasonable rates. The Firm's practice areas include: Antitrust Law; Banking and Financial Legal Services; Business Reorganization and Bankruptcy; Business and Securities Law; Employment Law; Environmental Law; Estate Planning and Trust Administration; Federal, State and Local Tax Law; General Business Litigation; Health Care Law; Internet and Technology Law; Professional Liability Litigation and Insurance Coverage; Real Estate Financings, Syndications and Workouts, Real Estate Litigation; Real Estate Sales, Development, and Subdivision and Leasing.Tue, 19 Feb 2019 18:03:09 +0000en-UShourly1Attorney General Rulemaking: Phase 2 of the California Consumer Privacy Acthttp://www.ecjlaw.com/attorney-general-rulemaking-phase-2-of-the-california-consumer-privacy-act/
Tue, 19 Feb 2019 16:30:22 +0000http://www.ecjlaw.com/?p=135529Continued]]>As you know by now, the California Consumer Privacy Act of 2018 (“CCPA”) is California’s groundbreaking legislation that grants California residents unprecedented rights and protections regarding the collection and use of their personal information. While the breadth and scope of the CCPA is readily transparent, California’s Attorney General (“AG”) is still in the process of adopting regulations to help implement the act. The AG is currently accepting comments in a series of public forums that began in January, and the California Department of Justice recently announced a March 8 deadline for submitting written pre-rulemaking comments. The AG will consider these pre-rulemaking comments when drafting CCPA rules and regulations. In the meantime, the CCPA sets out seven specific areas for AG rulemaking:

(1) Identifying the categories of personal information subject to the CCPA in order to address changes in technology, data collection practices, obstacles to implementation, and privacy concerns;

(2) Defining ‘unique identifiers’ under the CCPA to address changes in technology, data collection, obstacles to implementation, and privacy concerns, and additional categories to the definition of designated methods for submitting requests to facilitate a consumer’s ability to obtain information from a business upon request;

(3) Establishing exceptions to the CCPA where necessary to comply with federal or state law, including but not limited to those relating to trade secrets and intellectual property rights;

(4) Establishing rules and procedures: (a) To facilitate and govern the submission of a request by a consumer to opt-out of the sale of personal information; (b) To govern business compliance with a consumer’s opt-out request; (c) For the development and use of “a recognizable and uniform opt-out logo or button by all businesses to promote consumer awareness of the opportunity to opt-out of the sale of personal information;”

(5) Adjusting the monetary thresholds for businesses to be covered by the CCPA;

(6) Establishing rules, procedures, and any exceptions necessary to ensure that notices and information that businesses are required to provide under CCPA are provided “in a manner that may be easily understood by the average consumer, are accessible to consumers with disabilities, and are available in the language primarily used to interact with the consumer,” including establishing rules and guidelines regarding financial incentive offerings; and

(7) Establishing rules and procedures to facilitate a consumer’s or the consumer’s authorized agent’s ability to obtain information upon request, “with the goal of minimizing the administrative burden on consumers, taking into account available technology, security concerns, and the burden on the business” and to govern a business’ determination that a request for information received by a consumer is a verifiable consumer request.

The first draft of regulations will be published via a Notice of Proposed Regulatory Action in the Fall of 2019. After the notice is published, the AG will hold public hearings during a formal comment period. Unless significant changes are made to the regulations in response to public comments, the regulations will be finalized and implemented. The CCPA requires the AG to adopt formal CCPA regulations on or before July 1, 2020. Thereafter, enforcement actions by the AG will commence.

]]>State Law Dictates Who May File Bankruptcy For A Corporationhttp://www.ecjlaw.com/state-law-dictates-may-file-bankruptcy-corporation/
Thu, 14 Feb 2019 19:10:57 +0000http://www.ecjlaw.com/?p=135405Continued]]>

A prior Ask the Receiver discussed Sino Clean Energy Inc. by and through Baowen Ren v. Seiden, 565 B.R. 677 (Nev. 2017), where a district court’s affirmed of a bankruptcy court’s order dismissing a bankruptcy case. A state court receiver for a corporation removed the corporation’s board of directors and replaced them. The unhappy, removed, board members filed a bankruptcy petition for the corporation. The district court held state law determines who is authorized to file bankruptcy for a corporation. It rejected the petitioner’s argument that states cannot prevent a corporation from filing bankruptcy, explaining petitioners blurred the distinction between barring a corporation from filing bankruptcy, which states cannot do, and the long standing rule empowering states to determine who has the authority to file bankruptcy for an entity. The order appointing the receiver specifically empowered the receiver to pick a new board of directors for the corporation.

In August, the Ninth Circuit affirmed the district court. In re Sino Clean Energy, Inc., ____ F. 3d ___ (9th Cir. 2018). The Ninth Circuit explained that because the receiver had removed the prior board of directors, they no longer had any authority to act for the corporation. This is consistent with established receivership law. See, Commodity Futures Trading Commission v. FITC, Inc., 52B.R. 935, 937 (N.D. Cal. 1985) [“Once a court appoints a receiver, the management loses the power to run the corporation’s affairs. The receiver obtains all the corporation’s power and assets. Thus it was the receiver, and only the receiver, who this court empowered with the authority to place FITC in bankruptcy.”]. See also, SEC v. Spence & Green, 612F.2d 896, 903 (5th Cir. 1980); U.S. v. Vanguard Inv. Co. Inc., 667 F. Supp. 257 (M.D.N.C. 1987); First Savings & Loan Ass’n v. First Federal Savings & Loan Ass’n, 531 F. Supp. 251, 255-256(D. Hawaii 1981) [“When a receiver is appointed for a corporation, the corporation’s management loses the power to run its affairs and the receiver obtains all of the corporations power and assets.”].

The Ninth Circuit further explained: “state law dictates which persons may file a bankruptcy petition on behalf of a debtor corporation” and “state law includes the decision of its state courts,” which would include the receivership order.

The Circuit rejected the cases relied on by the petitioners, which held that states cannot enjoin a corporation from filing bankruptcy explaining, like the district court, enjoining a corporation from filing is different from determining who has the authority to file bankruptcy for a corporation. It specifically cited In re Corporate & Leisure Event Prods., Inc., 351 B.R. 724(Bankr. D. Ariz. 2006), relied upon by petitioners, and held to the extent it is contradictory “it is wrong.”

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

“Amy and Elizabeth are bright, collaborative and have already demonstrated their ability to provide the firm’s clients with the highest level of strategy and service,” said Ervin Cohen & Jessup’s Co-Managing Partner Barry MacNaughton. “They have the character and acumen that is the future of the Firm.”

Amy Anker focuses her practice on real estate acquisitions, dispositions and financing involving all types of commercial properties, including multifamily, office, industrial, shopping center, retail and mixed-use developments. In addition, Amy advises and counsels high-net-worth individuals and developer clients acquiring exclusive luxury homes and residential land in Bel Air, Beverly Hills and throughout Southern California. As a registered Tax Agent with Los Angeles County, Amy represents Los Angeles County taxpayers in complicated property tax matters and has appeared in front of the Los Angeles County Assessment Appeals Board. She received her Bachelor’s degree from the University of California, Berkeley, graduating summa cum laude, and her J.D. from the University of Southern California Gould School of Law. Amy was selected to the Super Lawyers – Southern California Rising Stars list for 2018.

Elizabeth Dryden’s practice encompasses virtually all areas of transactional real estate, including acquisitions and dispositions, financings, joint ventures, opportunity zone developments, syndications and leasing. With a specialization in leasing, Elizabeth represents both landlords and tenants throughout the world in connection with the leasing of luxury retail, office, industrial, hospitality, restaurant and residential properties. A business person’s attorney, Elizabeth focuses on practical and workable solutions for her clients, collaborating with them to meet their unique legal needs and without losing sight of their overall business objectives. She received a B.A. in Philosophy and Economics from Columbia University and her J.D. from New York University School of Law, where she was the Senior Production Editor of the Journal of Law & Business. Elizabeth also was selected to the Super Lawyers – Southern California Rising Stars list for 2017 and 2018.

]]>Kelly Scott Selected as Keynote Speaker for GLA ALA’s 2019 Employment Law Forumhttp://www.ecjlaw.com/kelly-scott-selected-as-keynote-speaker-for-gla-alas-2019-employment-law-forum/
Wed, 06 Feb 2019 12:50:43 +0000http://www.ecjlaw.com/?p=135505Continued]]>Kelly O. Scott, Partner and head of ECJ’s Employment Law Department, has been selected as the keynote speaker for the Greater Los Angeles Association of Legal Administrators (GLA ALA) 2019 Employment Law Forum. Kelly’s presentation, “Everything You Wanted to Know About Employment Law in 2019…But Were Afraid to Ask,” will examine some of the most important developments in employment law and prepare attendees for the current and future legal landscape. This year’s forum will be held Friday, February 8, 2019 at the Skirball Center in Los Angeles.

GLA ALA is a professional organization that promotes the development of legal service organizations through educational seminars and networking opportunities. It is comprised of more than 350 members throughout the Los Angeles, Santa Barbara, Ventura and Riverside counties. Its annual full-day conference provides informative programs designed to teach attendees to implement best practices in their organizations.

When a Mulholland Drive residential property owner failed to get the two consecutive owners of a neighboring property to relocate improvements that encroached on his property, he turned to Ervin Cohen & Jessup’s Real Estate Litigation and Land Use groups for resolution. After a six-day bench trial before Superior Court Judge Monica Bachner, Ervin Cohen & Jessup prevailed on behalf of its client in Silverlake v. Ganezer (LASC Case No. BC628422).

“When various, amiable attempts to work out the matter failed, we effectuated our plan B,” said Randy S. Leff, who led the firm’s trial team alongside Partner Ellia Thompson and litigator Patrick Emerson McCormick. “By recording a lis pendens, we were able to protect our client’s legal rights even after a third party purchased the neighboring property at a foreclosure sale. This procedure eliminated the new purchaser’s ability to prevail.”

A lis pendens is a written notice that a lawsuit has been filed concerning real property. Ervin Cohen & Jessup filed one against the offending property’s first owner, Phil Ganezer who, according to testimony at trial, illegally stabilized his house on a steep Los Angeles hillside by installing 11 concrete pilons, called soldier piles, and also constructing three sewage seepage pits on two adjacent properties owned by Ervin Cohen & Jessup’s client.

After a bank foreclosed on Ganezer’s house and sold it at auction for $1.1 million to Justin Monempour, as the trustee of The Mulholland Trust dated September 1, 2016, Ervin Cohen & Jessup amended the complaint to include Monempour as a defendant. As the lawsuit progressed, Ervin Cohen & Jessup’s Land Use Group diligently uncovered all of Ganezer’s grading and building permits and approvals, documentation that showed Ganezer had not complied with the City’s stated regulations and had violated numerous conditions of the project’s original approvals.

At trial, it was established that Monempour was aware of the lis pendens and Ervin Cohen & Jessup’s client’s claims before he purchased the property and is therefore required to remediate the situation. Judge Bachner’s preliminary order requires Monepour to bear all of the expenses associated with removing or abandoning all of the illegal improvements. According to the testimony of Monempour’s expert witnesses, the cost of abandoning the illegal improvements, re-stabilizing the slope and reconstructing the seepage pits on the Trust-owned property will be approximately $1 million.

“Al is a terrific attorney, and he demonstrates all the qualities you would expect from someone at the top of their game,” said Barry MacNaughton, a complex business litigator who serves as the firm’s co-managing partner. “We are thrilled that others in the business community also recognize his talents.”

Los Angeles Business Journal said the list was created to highlight “particularly stellar minority attorneys in the L.A. region who happen to be from a broad cultural spectrum.” The list includes only those considered particularly impactful on the legal scene, “while serving as trusted advisors in the LA region, along with maintaining the highest professional and ethical standards, and for contributions to the Los Angeles business and legal community at large.”

The special issue praised Valencia, a Partner in the firm’s Real Estate group, for his experience in a broad range of real estate asset classes including multifamily, office, retail, mixed-use, and industrial properties.

Valencia regularly represents clients in forming joint ventures and syndications, negotiating structured finance transactions (including obtaining CMBS loans, mezzanine debt, and preferred equity), and assisting property owners in asset management. His recent work includes leading the purchase of the former Amgen campus comprised of approximately 198,478 square feet in Thousand Oaks, and the purchase of Trinity Towers, a 634,381 square foot office building in Dallas.

Valencia also serves as an active member and panelist for Filipinos in Institutional Real Estate and is a regular speaker to students at UCLA’s Riordan Scholars program. He was previously recognized by Public Counsel with the 2013 Pro Bono of the Year award for his work in organizing and forming a limited equity housing cooperative as a member of the Tierra Urbana Real Estate Team, and received the Proskauer Golden Gavel award in 2010 for his outstanding pro bono work.

]]>A Reminder: The IRS Mileage Rates Have Changedhttp://www.ecjlaw.com/a-reminder-the-irs-mileage-rates-have-changed/
Thu, 31 Jan 2019 15:17:31 +0000http://www.ecjlaw.com/?p=135455Continued]]>The 2019 mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes have increased from last year, or remained unchanged. Specifically, as of January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) are:

58 cents per mile for business miles driven, up three and one-half cents from 2018;

20 cents per mile driven for medical or moving purposes, up two cents from 2018; and

14 cents per mile driven in service of charitable organizations.

The IRS standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. The charitable rate is based on a statute.

Note that taxpayers can calculate the actual costs of using their vehicles rather than using the standard mileage rates.

The rates are important because most employers use the standard rate for business as the reimbursement rate for employees who drive their vehicles in connection with performing work. However, employers should note that, just like deductions for taxpayers, employees can opt to calculate their actual mileage expenses instead of using the IRS rate.

The author would like to gratefully acknowledge the assistance of Joanne Warriner.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2019. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.

Ervin Cohen & Jessup LLP is proud to announce that 10 of its attorneys have been selected to the 2019 Southern California Super Lawyers list. Each year, no more than five percent of attorneys are recognized by Super Lawyers as the top attorneys in their fields.

The following ECJ lawyers were selected in their practice areas for 2019:

About Super Lawyers

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area.

]]>Employer Alert: Minimum Wage Increaseshttp://www.ecjlaw.com/employer-alert-minimum-wage-increases/
Mon, 28 Jan 2019 15:00:21 +0000http://www.ecjlaw.com/?p=135439Continued]]>On January 1, 2019, the state minimum wage increased to $12.00 per hour for employers with at least 26 employees, and $11.00 per hour for smaller employers. The state minimum wage governs the exempt employee threshold salary, which has increased accordingly. The new minimum salary for employees exempt from overtime is $49,920 annually for employers with at least 26 employees, and $45,760 annually for employers with fewer than 26 employees.

Further, a number of California municipalities will raise their minimum wage rates on July 1, 2019. Employers should take care to note these changes because the pace of minimum wage increases in these locations will surpass increases in the California state minimum wage in the race to reach $15.00 per hour.

In determining whether a given increase applies, employers should know that it is not where an employee lives, or where an employer is based, that determines the minimum wage that must be paid. Rather, it is where the employee works that matters. In most of these locations, if an employee works as few as two hours in the city in a week, that municipality’s minimum wage applies to the time worked there.

Southern California municipalities that will raise their minimum wage rates on July 1, 2019, unless another date is noted, are as follows:

Location:

Employers with at least 26 employees:

Employers with fewer than 26 employees:

City of Los Angeles

$14.25 (currently $13.25)

$13.25 (currently $12.00)

County of Los Angeles (unincorporated areas)

$14.25 (currently $13.25)

$13.25 (currently $12.00)

Santa Monica

$14.25 (currently $13.25)

$13.25 (currently $12.00)

Malibu

$14.25 (currently $13.25)

$13.25 (currently $12.00)

Pasadena

TBD1 (currently $13.25)

TBD2 (currently $12.00)

San Diego (increased on January 1, 2019)

$12.00

$12.00

Northern California locations with recent or impending increases in their minimum wage are below. Note that these locations do not distinguish between smaller and larger employers for minimum wage purposes:

San Francisco (July 1, 2018)

$15.00 (subject to CPI increases on July 1, 2019, & each year thereafter)

Berkeley (October 1, 2018)

$15.00 (subject to CPI increases on July 1, 2019, & each year thereafter)

Oakland (January 1, 2019)

$13.80

Palo Alto (January 1, 2019)

$15.00

Richmond (January 1, 2019)

$15.00

El Cerrito (January 1, 2019)

$15.00

Mountain View (January 1, 2019)

$15.65

San Jose (January 1, 2019)

$15.00

Santa Clara (January 1, 2019)

$15.00

Sunnyvale (January 1, 2019)

$15.65

Milpitas (July 1, 2019)

$15.00

San Leandro (July 1, 2019)

$14.00

Employers should also keep an eye open for changes at the federal level. Effective December of 2016, the U.S. Department of Labor had planned to increase the federal exempt salary threshold from $23,660 to $47,476, but this move was blocked by an injunction. The Department of Labor under the Obama administration appealed the injunction, but the Department of Labor under the Trump administration requested comments in the Federal Register regarding how the salary threshold should be updated and may be close to proposing a new overtime threshold, which is expected to be considerably lower than the $47,476 level previously planned. We will keep you posted on this issue as developments occur.

The author would like to gratefully acknowledge the assistance of Joanne Warriner.

[1] & [2] On or before February 18, 2019, the Pasadena City Manager is required to report on minimum wage impact to the City Council, and as soon as practical thereafter, the City Manager is required to request direction from the City Council whether to institute the following increases: on July 1, 2019, to $14.25 and on July 1, 2020, to $15.00.

All managers and supervisors who are employed in California are required by law to complete at least two hours of interactive Harassment & Bullying Prevention training. The training must take place every two years and within six months of promotion or hire. This requirement now applies to all employers with five or more employees or independent contractors.

This workshop will not only meet these educational requirements, but exceed them. You will learn situation-specific techniques regarding the prevention and correction of all types of harassment under both federal and state law, as well as training that complies with the recent law on the prevention of abusive conduct in the workplace. In addition, you will walk away with a practical understanding of the remedies available to victims of harassment as well as the defenses employers have at their disposal. Presented in a lively, entertaining and engaging format, what you learn in this workshop will stay with you for the next two years… and beyond.

To qualify for the overtime exemption, computer software employees must be paid a salary of at least $94,603.25 annually ($7,883.62 monthly), or an hourly wage of at least $45.41. In addition, a computer software employee must also meet the duties test set forth in California Labor Code Section 515.5, which are also included in all Wage Orders except Orders 14 and 16.

More specifically, the employee must be primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment. Job titles do not determine of the applicability of this exemption. Rather, the Labor Code and Wage Orders state that the computer software employee’s duties must primarily consist of one or more of the following:

(A) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.

(B) The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

(C) The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

The computer software employee must also be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering.

The exemption does not apply to an employee who is a trainee or employee in an entry-level position who is learning to become proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering. Nor does the exemption apply to someone who has not yet not attained the level of skill and expertise necessary to work independently and without close supervision. Persons engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment are not eligible for the exemption. Other types of workers, such as engineers, drafters, machinists, or other professionals whose work is highly dependent upon or facilitated by the use of computers and computer software programs and who are skilled in computer-aided design software, including CAD/CAM, but who are not engaged in computer systems analysis, programming, or any other similarly skilled computer-related occupation, are similarly not eligible for the computer software exemption to overtime, although other exemptions may apply. Similarly, writers engaged in writing box labels, product descriptions, documentation, promotional material, setup and installation instructions, either for print or for onscreen media that is computer-related, do not fall under this exemption. Persons who create imagery for effects used in the motion picture, television, or theatrical industry who might otherwise meet the duties test are singled out for exclusion by the Labor Code and Wage Orders.

The increase is required by Labor Code Section 515.5 (a)(4), which imposes annual adjustments to this threshold based on increases in the California Consumer Price Index for Urban Wage Earners and Clerical Workers.

Q: I am the receiver for a small grocery store and restaurant owned by an uncooperative divorcing couple. I am in the process of selling the store and restaurant and paying claims. I have been contacted by a few parties who say they have liens that need to be satisfied. I have run a UCC search and obtained a title report and I don’t see the liens they claim. I told this to one of their lawyers and he said his clients have “secret liens.” What in the world are “secret liens” and how am I supposed to know about them and deal with them?

A: Unfortunately there are numerous “secret liens,” sometimes called “hidden liens,” that cannot be found by searching public records. They exist under both California and federal law. They have been created by the legislature to protect various parties and interests, without thought to how third parties can find them. A report prepared by the State Bar, Business Law Section, in 2010 identified over 155 secret liens; some you may have heard of but not appreciated, others you likely never heard of. The Bar report lists the liens in six broad categories: (1) Liens arising in litigation, (2) Agricultural liens, (3) Liens arising in sales transactions, (4) Liens for performance of services, (5) Tax and governmental liens, and (6) Liens on particular types of personal property.

In the litigation arena, one of the most common “secret liens” is a lien on all of a judgment debtor’s property which arises when the judgment debtor is served with an order for his judgment debtor examination (known as an “ORAP” lien) (C.C.P. § 708.110). The lien lasts for one year after the order is served.

In the agricultural area, the most common, and far reaching, “secret lien” is the PACA lien, created under the Perishable Agricultural Commodities Act (7 U.S.C. § 499 et seq.). In summary, if “perishable agricultural commodities” (which include fruits and vegetables) are sold, which have been shipped through interstate or foreign commerce, and have not been paid for by the buyer, the seller has a lien not only on the PACA commodities sold, but also on the products derived from the commodities and the proceeds from the sale of the commodities. So, for example, if the commodities are turned into meals by a restaurant, or into some other product, the PACA seller has a lien on the proceeds of the meals or product. JC Produce Inc. v. Paragon Steakhouse Restaurants, Inc., 70 F.Supp. 2d 1119 (E.D. Cal. 1999). The PACA lien is perfected by the seller simply providing notice to the buyer of the lien within 30 days of the buyer’s default.

There are far too many “secret liens” to list or discuss here, however, a 2013 update of the Bar report can be found online by simply Googling: “California hidden liens.” One important “secret lien” not listed is the lien a receiver gets upon his appointment. California Commercial Code § 9102 (52)(E) defines a “lien creditor” as, among other things: “A receiver in equity from the time of appointment.” The receiver’s lien is superior to any unperfected security interest at the time of his appointment. So, the receiver is ahead of unsecured creditors and security interests that are not properly or timely perfected. Commercial Code § 9317(a)(2).

As to how to deal with the “secret lien” problem, the best practice is to file a motion to establish a claims procedure, requiring anyone who has a claim to receivership assets to file their claim with the receiver by a certain date. The claim form should include a section asking the claimant if he or she asserts a lien on any of the receivership assets and, if so, to provide details. Once the time for filing claims expires, the receiver, after reviewing the claims, should file a motion asking the court to approve the receiver’s determinations of who has allowed claims and the amounts and directing the receiver who to pay. In this way, the receiver is immunized because when he then distributes the estate’s funds he is doing so pursuant to court order.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

]]>Kelly Scott Selected as Keynote Speaker for PIHRA’s 2019 Annual Legal Updatehttp://www.ecjlaw.com/kelly-scott-selected-keynote-speaker-pihras-2019-annual-legal-update/
Fri, 04 Jan 2019 23:38:20 +0000http://www.ecjlaw.com/?p=135413Continued]]>Kelly O. Scott, Partner and head of ECJ’s Employment Law Department, will be featured as a keynote speaker at the 2019 Professionals in Human Resources Association (PIHRA) Annual Legal Update conference series. His presentation, “2019: What You Don’t Know Can Hurt You!” will examine some of the most important developments in employment law.

PIHRA is dedicated to the continuous enhancement of human resources through networking, learning, and advocacy. It’s annual Legal Update seminars present the latest California employment law-related updates through comprehensive, actionable programming that provides attendees with the information needed to protect their organizations and manage their companies’ risks.

This event is held annually in multiple locations across Southern California; the 2019 dates and locations are as follows:

For additional information or to register, please click on one of the above dates and locations.

]]>Client Alert Update: More Details on Changes to TOC Mapshttp://www.ecjlaw.com/client-alert-update-details-changes-toc-maps/
Mon, 10 Dec 2018 20:15:58 +0000http://www.ecjlaw.com/?p=135389Continued]]>As described in our previous Client Alert, the Los Angeles City Planning Department is reviewing its current TOC Tier designations, and due to mistakes in current TOC maps, many properties will have their Tier designations downgraded or will be eliminated from TOC eligibility altogether after the maps are revised. Most, but not all, of these properties are located in the Valley or West Los Angeles. Also, a number of properties throughout the City will be downgraded from Tier 4 to Tier 3 due to changes in the way the Planning Department will measure the required distance from the nearest metro rail station/Rapid Bus Stop.

Upon further discussion with City Planning staff, we understand that the revised TOC maps are expected to be released in January, not December as originally thought. Also, for recently purchased properties you are considering for TOC development, you may be able to protect yourself from changes to the maps by taking one of the following steps:

Submit a “Tier Verification Form (CP-4051)” to City Planning. We have been told, if you submit this form before the new maps become effective, the current TOC Tier designation will be honored. Once approved, you will be allowed to proceed with a by-right TOC project (i.e., with “Base Incentive” requests for density, parking and FAR, only) by submitting a building permit application within 180 days of approval.

Submit a “TOC Referral Form (CP-4050)” to City Planning. We have been told, if you submit this form before the maps become effective, the current TOC Tier designation will be honored. Project plans are required with a TOC Referral Form, and once approved, you will be allowed to proceed with a TOC project that asks for Additional incentives (i.e., for height, Open Space, setbacks, etc.) beyond the base incentives by submitting a City Planning Application within 180 days of approval.

Submit a Tier Verification Form first, and if you would like to proceed with a TOC project that includes Additional Incentives, submit and gain approval of a TOC Referral Form so that you can submit a City Planning Application before the 180-day expiration date of the original Tier Verification Form.

As stated previously, we believe the anticipated changes to TOC projects will not impact those TOC projects for which application forms have already been accepted for processing, but be mindful of the 180-day expiration date.

Please be mindful that this policy is continually evolving and we cannot guarantee what the final process will be or what the City Planning Department will ultimately enforce.

]]>Client Alert: Changes to TOC Tier Determinations Are Coming in December – Be Careful Before Buying New Properties and Get Your Applications In Now!http://www.ecjlaw.com/client-alert-changes-toc-tier-determinations-coming-december-careful-buying-new-properties-get-applications-now/
Mon, 03 Dec 2018 12:31:15 +0000http://www.ecjlaw.com/?p=135380Continued]]>The Los Angeles City Planning Department is reviewing its current TOC Tier determinations (i.e., whether a property is in a Tier 1, 2, 3 or 4 TOC incentive area) and has found numerous mistakes in its current TOC map and on ZIMAS. These mistakes could severely impact future requests for TOC density bonuses and incentives, especially in the Valley or in West Los Angeles.

The mistakes primarily involve properties which have been erroneously labeled as eligible for certain TOC incentives due to their locations near bus stops that do not meet the “Major Bus Stop” requirements in the TOC Guidelines. As a result, many properties will have their Tier determination downgraded or will be eliminated from TOC eligibility altogether – most, but not all, of these properties are located in the Valley or West Los Angeles.

In addition, the Planning Department will soon measure the required 750-ft. distance for a Tier 4 property located near a metro rail station/Rapid Bus stop only from the nearest metro rail station entrance – and not from either the station entrance or nearest Rapid Bus stop at the same intersection (whichever is shorter). As a result, a number of properties throughout the City will be downgraded from Tier 4 to Tier 3.

Revised TOC maps are expected to be released in December, and a memo from the City Planning Department announcing these revisions is expected within the next couple of weeks. However, a draft version of the new TOC map is not available to the public, and the only way to currently confirm whether your property is impacted is by the TOC revisions is by contacting City Planning staff. So, please contact us (see contact information below) if you are considering purchasing a property for TOC development, and we will be happy to confirm whether your property may be impacted.

Note that these changes will not impact TOC applications that have already been accepted for processing, and City Planning staff have stated they will honor any TOC application request based on the current map as long as the Administrative TOC application (the pre-application form) is submitted prior to release of the revised map and all fees have been paid. So, submit your application forms as soon as possible if you are considering a TOC project on a property that you already own.

]]>Two Ervin Cohen & Jessup Partners Selected to Geneva Group International Leadershiphttp://www.ecjlaw.com/two-ervin-cohen-jessup-partners-selected-geneva-group-international-leadership/
Wed, 14 Nov 2018 17:01:44 +0000http://www.ecjlaw.com/?p=135351Continued]]>LOS ANGELES –Nov. 14, 2018 – Ervin Cohen & Jessup today announced that two of its Partners will take leadership positions with Geneva Group International (GGI), a worldwide alliance of well-established and experienced law, accounting and consulting firms committed to providing clients with specialist solutions for their international business requirements.

“We are truly thrilled to have the ability to tap Randy and Byron in such a strategic way,” said Claudio Cocca, chairman and founder of GGI. “Since Ervin Cohen & Jessup’s inception in our alliance, both Randy and Byron have been instrumental in our continued success.”

Randy S. Leff, Ervin Cohen & Jessup’s Co-Managing Partner and a Partner in the firm’s Litigation practice, has joined GGI’s Executive Committee. Serving in a strategic, advisory role is familiar territory for Leff as many of his clients have recruited him over the years to their management teams because his business acumen, entrepreneurial zeal and problem-solving skills give organizations a competitive advantage.

Byron Z. Moldo, chair of the firm’s Bankruptcy, Receivership and Creditors’ Rights practice, will serve as Global Vice Chair of GGI’s Debt Collection, Restructuring and Insolvency practice group. Moldo’s practice areas include bankruptcy, receivership, assignments for the benefit of creditors and all aspects of insolvency. He regularly serves as a Receiver in state and federal court cases, as an assignee for the benefit of creditors, and as a fiduciary in other court-supervised matters.

“GGI is one of the leading and the largest alliances of its kind throughout the world,” said Ervin Cohen & Jessup Co-Managing Partner Barry MacNaughton. “Our participation in GGI has been tremendous, particularly as it has exposed us to international resources, and we are pleased to have our Partners playing a pivotal role in its leadership.”

Under current California law, organizations with 50 or more employees or independent contractors must provide two hours of interactive harassment and abusive conduct prevention training for their managers and supervisors every two years and within six months of placement into a supervisory or management position. The training required must include information and practical guidance regarding the federal and state statutory provisions concerning the prohibition against, and the prevention and correction of, sexual harassment, as well as the remedies available to victims of sexual harassment. The training must also include practical examples aimed at instructing supervisors in the prevention of harassment, discrimination, and retaliation, and must be presented by trainers or educators with knowledge and expertise in the prevention of harassment, discrimination, and retaliation. Although this training was recommended for smaller employers, there was no specific requirement that an employer with fewer than 50 employees or independent contractors undertake any such training…until now

Specifically, Senate Bill 1343 requires that any employer with at least five employees or independent contractors have the same training obligations that are currently limited to larger employers. That is, these smaller employers will have to provide two hours of interactive training for their managers and supervisors, and conduct this training thereafter every two years and within six months of placement into a supervisory or management position. The initial training must take place by January 1, 2020.

Additionally, by January 1, 2020, all California employers with five or more employees or independent contractors will also have to provide harassment training to their non-supervisory employees. The training must consist of at least one hour of interactive harassment training, and must take place every two years and within six months of hire. As with the supervisory training requirements, an employer may provide this training in conjunction with other training, and the training may be completed by employees individually or as part of a group presentation. The training may also take place in shorter segments, as long as the hourly requirements are met.

For new seasonal or temporary employees hired for less than six months, the training will be required within 30 calendar days of hire or 100 hours worked, whichever is first. However, migrant and seasonal agricultural workers must be trained on hire. Temporary services employers employing temporary employees to perform services for clients must provide this training, rather than the client.

SB 1343 requires that the Department of Fair Employment and Housing offer two online training courses to provide employers with an online option to complete the training obligations, although employers are free to develop their own training programs or obtain the services of a professional trainer or educator. The DFEH will make the online training courses available on its Internet site, www.dfeh.ca.gov.

Note: ECJ will continue to provide lively and effective in-person harassment and abusive conduct training that meets all the obligations of SB 1343 and more. For details, please contact your ECJ attorney or the author at kscott@ecjlaw.com, or telephone (310) 281 6348.

Beginning on January 1, 2019, lawyers will need to make sure clients understand existing confidentiality protections for mediation communications before the client agrees to participate in mediation. Or if the client has already agreed to mediation prior to seeking counsel, then the lawyer must obtain the client’s informed consent as soon as possible after his or her retention. To be clear, the new law, Senate Bill No. 954 does not change existing laws regarding confidentiality in mediation; it only requires attorneys to take extra steps to ensure that clients understand the scope and effect of confidentiality in mediation.

The recently signed SB 954 will require lawyers to provide printed disclosures to their clients about confidentiality restrictions in mediation and to obtain their clients’ signatures, confirming their clients understand. The disclosure needs to be in the preferred language of the client, in twelve-point font, confined to one page on a stand-alone document, and must be signed and dated by the attorney and the client.

The new law specifies the contents of a sample form disclosure which attorneys can elect to use for easy compliance. The disclosure succinctly summarizes California’s mediation confidentiality laws as laid out in Sections 703.5 and 1115 through 1129 of California’s Evidence Code, explaining to the client that these sections ensure that:

All communications, negotiations, or settlement offers in the course of a mediation must remain confidential.

Statements made and writings prepared in connection with a mediation are not admissible or subject to discovery or compelled disclosure in noncriminal proceedings.

A mediator’s report, opinion, recommendation, or finding about what occurred in a mediation may not be submitted to or considered by a court or another adjudicative body.

A mediator cannot testify in any subsequent civil proceeding about any communication or conduct occurring at, or in connection with, a mediation.

All communications between the attorney and the client made in preparation for a mediation, or during a mediation, are confidential and cannot be disclosed or used (except in extremely limited circumstances), even if the client later decides to sue their attorney for malpractice because of something that happens during the mediation.

If an attorney fails to comply with the new disclosure and acknowledgment requirements, this cannot be used as a basis to set aside an agreement prepared in the course of, or pursuant to, a mediation. However, the attorney can still be subjected to a disciplinary proceeding about his or her compliance with the new law and communications or writings relating to the attorney’s compliance may be used in the disciplinary proceeding, as long as those communications or writings do not disclose anything said or done or any admission made in the course of mediation.

Since the law will go into effect immediately in the new year, attorneys should review their cases now and determine for which of their cases, if any, the parties have plans to participate in mediation in the new year. Attorneys should then allow enough time to send out the required disclosure document, explain it to their client, and collect their client’s signature.

]]>A Brief Summary of the Music Modernization Acthttp://www.ecjlaw.com/brief-summary-music-modernization-act/
Thu, 25 Oct 2018 16:04:56 +0000http://www.ecjlaw.com/?p=135332Continued]]>On October 11, 2018, President Trump signed the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (the “MMA”).[1] The MMA was unanimously approved in both chambers of Congress before the President’s signature and marks the first major copyright legislation since the Sonny Bono Copyright Term Extension Act of 1998 (aka the Mickey Mouse Protection Act).

The MMA is actually a collection of three separate laws (the MMA, the CLASSICS Act, and the AMP Act) designed to address three specific areas of music law that have been rife with uncertainty since the Copyright Act of 1976. The Copyright Act of 1976 created federal copyright protection for any music recorded in or after February 15, 1972, but left pre-February 15, 1972 recordings subject to a patchwork of state protections. This uncertainty has led to numerous and costly lawsuits as the performance landscape continues to move to the digital arena, the most prominent one settling for $99 million two years ago.[2]

The first law, and probably most significant, the MMA will change the process for obtaining a compulsory license for digital performance of a work (whether download or streaming) from a song-by-song basis to a blanket license “covering all musical works available for digital licensing.”[3]In order to comply, the Copyright Office will create a mechanical licensing collective (“MLC”), which will maintain a database of all works available for compulsory licensing. The MLC will additionally receive notices, identify works and copyright holders, and distribute royalties. It also creates a process for the use of orphan works, which are works whose copyright owners cannot be identified or located. Finally, the MMA moves the rate-setting standard used by Copyright Royalty Judges from a policy-oriented rate setting standard to an open-market standard (i.e., rates based on an arm’s length seller/buyer transaction).

Recordings first published before 1923 are now protected up to December 31, 2021;

Recordings created between 1923-1946 are now protected an additional 5 years after their general 95-year copyright term;

Recordings created between 1947-1956 are now protected an additional 15 years after their general 95-year copyright term; and

Recordings created between 1957-February 15, 1972 are now protected an until February 15, 2067.

Rights holders might be able to obtain retroactive relief from the past three (3) years of transmissions, but transmitters have 270 days (until July 7, 2019) to register the last three (3) years of transmissions and pay the mandated royalties before that is available.

Third, the AMP Act codifies the process by which music producers receive royalties via SoundExchange for public performances of their works, per Section 114 of the Copyright Act of 1976.[4]

This legislation was passed not only with unanimous bipartisan support, but with support from almost every aspect of the music industry, including songwriters, producers, engineers, performers, record labels, and distributors.

Now that the MMA has been signed into law, the next step—the creation and management of the MLC—will be no easy task. The Copyright Office must now write the regulations for the MLC and approve its 17-member board of directors: ten voting representatives from music publishers; four voting representatives who are songwriters with rights to their own publishing; and, three non-voting members representing, respectively, a nonprofit trade association of music publishers, a digital licensee coordinator, and a nonprofit advocating for songwriters. As each sector of the industry vies for more favorable regulations and seats at the table in the MLC, the unanimous industry support for the MMA may begin to splinter.

The creation and regulation of the MLC aside, the majority of this legislation will go into effect with little friction or fanfare and serve to streamline significant aspects of the music industry.

Beginning September 21, 2018, employers must use the newly issued model Summary of Your Rights Under the Fair Credit Reporting Act form (or their own form based on the model) when providing the required written notice to an employee or a job applicant that a background check will be conducted. The revised federal form is also required if an employer plans to take adverse action against an employee or applicant based on the report.

The revised form includes notification of the newly granted right under the Economic Growth, Regulatory Relief and Consumer Protection Act passed by Congress in May 2018, allowing a consumer to obtain a security freeze on his or her credit report. The freeze would prohibit a consumer reporting agency from releasing information in the consumer’s credit report without the consumer’s express authorization.

California employers should keep in mind that federal requirements under the FRCA are in addition to, and do not preempt, California state law requirements under the California Investigative Consumer Reporting Agencies Act and the California Consumer Credit Reporting Agencies Act. Further, California employers must comply with Labor Code section 1024.5 which prohibits the use of consumer credit reports for employment purposes except for certain positions, as well as state and local laws on the use of criminal background checks.

Technology procurement is quickly evolving from a tactical, organization-wide undertaking to one that is more strategic and catering to multiple units within a company’s infrastructure. As a result, the skill set of the CTO, CIO, General Counsel and other members of the procurement team must follow suit. Upgrades used to be about minimizing costs and lowering risks. But those were the old days. Now, the procurement team responsible for software, hardware, and data security upgrades are being asked to select and implement technology platforms that drive innovation and efficiency, better service a wide cross-section of their customers, and even find new ways to generate revenue. In order to be successful in procurement decision making, a company’s procurement leaders must not only understand the high-level business plans and goals of the organization, but also the objectives of the specific units within that organization. Marketing, HR, customer service, document management, communications, business development and sales may each have their own nuanced and materially different needs when it comes to technology; and the procurement team must learn how technology products and services can benefit and support each and every department within their corporate hierarchy.

Typically, there are three stages to a successful procurement process: (1) Planning, (2) Research & Evaluation, and (3) Negotiation & Implementation. In the planning stage, the procurement team must collaborate with one another to define the company’s business objectives and needs, and determine the scope of the upgrades necessary to achieve the desired outcome. At this stage, it is prudent to sync up the identified business needs with specific procurement-related metrics in a procurement plan including: estimated costs for the upgrade; quantifiable financial and non-financial benefits; and intended outcomes. A procurement plan should also outline the technical aspects of the upgrade, address any scheduling challenges, and identify potential risks, all of which should be shared with the technology vendors. Armed with these details the vendors can propose mitigation techniques and share escalation procedures as part of their response to your solicitation. Obviously, the procurement team should try and allocate risk through contract negotiations, and robust service-level agreements, clearly defined acceptance criteria, and financial consequences for material breach are all crucial.

Stage two of the procurement process is market research and evaluation. The procurement team must understand not only the technical marketplace and competition within that marketplace, but also the latest innovations available and the types of services and support provided by various vendors. Only through adequate market research can the procurement team develop a detailed statement of work with its vendors including the purpose of the upgrade, the scope of products to be purchased and services to be rendered, a list of deliverables and corresponding schedules, the standards to be adhered to by the vendors, and other criteria applicable to the engagement. Once market research is complete, the solicitation process can begin and prospective vendors can be given the opportunity to respond directly and in writing to your company’s needs. Vendor experience, proposed solutions, and cost-effectiveness of those solutions should be carefully analyzed.

The third and final stage of the procurement process is negotiation and implementation. When defining areas of responsibility be detail-oriented and specific. The same is true when fleshing out the performance standards and compensation structure for the procurement transaction. Once the agreements are all executed and implementation begins, the procurement team should continue to use the contracts as a reference tool to ensure that vendors stay true to the obligations created therein. Procurement teams and their counsel should actively measure progress on a regular basis, compare actual deliverables to those outlined in the agreements, and vendors should be held accountable for unforeseen costs and time overruns. Performance deficiencies should be documented and remedies discussed as schedules and corresponding milestones come due.

Ultimately, success of a large-scale technology upgrade can be measured based on the effectiveness of communication and coordination by and among the procurement team and vendors; determining whether both technical and business needs and objectives of your company were adequately met; and confirming that the procurement was cost-effective and that deliverables were achieved in a timely manner all as specifically outlined in the procurement plan, statement of work and corresponding contracts.

On September 13th, the National Labor Relations Board (NLRB) announced that it will propose a new joint employer rule that represents a relaxation of the current standard for determining if businesses are joint employers. Under the current rule, known as the Brown-Ferris rule, the definition of joint employer is expansive, so that an employer having only indirect or potential control over another employer’s workers can be found to be a joint employer.

Under the proposed rule, an employer may be found to be a joint employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment, and it has done so in a manner that is not limited and routine. Indirect influence over the other employer, or reserving authority in a contract to exercise authority over the other employer, would no longer be sufficient to establish a joint employer relationship.

It will come as no surprise to California employers that the rules on joint employment in
California are a bit more tricky. In California, employers can be held to be joint employers when an employer has the ability to prevent the worker from performing services, or when an employer or person exercises control over the wages, hours or working conditions of any person, directly or indirectly. Given that there are a variety of factors involved, California employers should be careful to properly analyze any potential joint employer situation before reaching any conclusion.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2017. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.

Buried in the 2017 Tax Cuts and Jobs Act, there is now a general business tax credit employers may claim which is based on wages paid to qualifying employees while they are on family and medical leave. To be eligible for the credit, employers must have a written policy in place that provides at least two weeks of paid family and medical leave on an annual basis to all qualifying employees who work full time and which is prorated for employees who work part time. In addition, the paid leave cannot be less than 50 percent of the wages normally paid to the employee.

The Act defines a qualifying employee to be any employee who has been employed by the employer for one year or more and who, for the preceding year, had compensation of not more than a certain amount, which is currently $72,000.

The leave may be taken for one or more of the following reasons:

Birth of an employee’s child and to care for the child;

Placement of a child with the employee for adoption or foster care;

To care for the employee’s spouse, child, or parent who has a serious health condition;

A serious health condition that makes the employee unable to perform the functions of his or her position;

Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces; and

To care for a service member who is the employee’s spouse, child, parent, or next of kin.

Paid vacation, personal leave, or other paid medical or sick leave is not considered paid family and medical leave for purposes of the tax credit. In addition, any leave paid by a state or local government or required by state or local law will not be taken into account in determining the amount of employer-provided paid family and medical leave.

The tax credit is a percentage of the amount of wages paid to the employee while on the family and medical leave for up to 12 weeks per taxable year. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to the employee exceeds 50% of the employee’s wages, with a maximum of 25%. An employer claiming the credit must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.

The credit is available for wages paid in taxable years of the employer beginning after December 31, 2017, and will not available for wages paid in taxable years beginning after December 31, 2019.

Upgrading a large complex portion of a company’s (“Newco’s”) IT infrastructure can be a daunting task. However, as its business grows, Newco will want and need to add new capabilities and enhance existing service offerings. Here is a brief overview of some strategies for helping Newco navigate the process including software and hardware procurement, finding the right systems integrator, negotiating Service Level Agreements (“SLAs”), and ensuring timely on-budget implementation.

Software and Hardware Procurement

Newco will want to work closely with the Systems Integrator (“SI”) during the procurement process in order to lay the foundation for successful negotiation of the various vendor agreements and implementation. It will give Newco insight into the players, products, and scope of the upgrade, and put Newco in a position to apply and integrate specific data points into its agreements. Newco wants to ensure that its procurement experts are not just seeking the newest software and hardware on the market, but rather specific solutions that meet Newco’s needs and helps Newco meet its primary goals and objectives. Otherwise, contract negotiations will be less valuable.

When counseling Newco on software and hardware procurement, I focus on understanding the scope and requirements for the new IT network, ensuring protection of the data residing on the existing IT infrastructure, structuring transactions that facilitate seamless transition to the new IT systems, and creating legal obligations that require vendors and consultants to carefully manage IT assets and provide support services that comport with the highest industry standards. Procurement is a complex process with lots of moving parts, and Newco must work diligently to ensure that it is involved early and often so that the contracts effectively outline procurement objectives in detail, create accountability, define remedies, and establish a clear set of deliverables from service providers, vendors and consultants.

Systems Integrator Services

As with procurement, Newco will also want to be involved in the process of evaluating and choosing the SI. The SI will be responsible for orchestrating and implementing all of the various hardware, software, networking and storage products Newco chooses during procurement from multiple vendors. Newco will want to see a specific integration plan from the SI and integrate that plan into the SI engagement agreements. Will Newco need to design and build a customized architecture? Will Newco need to integrate new with existing hardware infrastructure? Will Newco be purchasing pre-packaged or customized software? These are all questions that need to be addressed before agreements are signed.

The key to a successful SI engagement is (1) ensuring that the SI is legally obligated and contractually bound to optimize the lengthy and complex procurement, implementation, and integration process; (2) outlining the SI’s responsibilities for administering, overseeing and supervising the IT service providers; (3) measuring SI’s performance against well-defined criteria; and (4) obligating SI to actively and effectively communicate with, and facilitate communication by and among, Newco and the various software and hardware vendors, suppliers, contractors, and consultants. Moreover, the SI’s pitch to Newco needs to match its process as provided for in the SI Managed Services Agreement.

How does the SI’s process ensure quality control over implementation, software and hardware testing and acceptance; strict adherence to vendor and consultant representations and warranties; facilitate workflows; and achieve milestones outlined and defined in the various agreements with vendors and consultants? Does the SI have its own systems integration software including a shared dashboard with Newco that enables simultaneous viewing and tracking of deliverables? Ultimately, Newco must develop an intimate understanding of the SI’s toolkit in order to lay the foundation for successful contract negotiations with the SI.

Service Level Agreements

The SLAs should include not only a description of the services to be provided and their expected service levels, but also metrics by which the services are measured, the duties and responsibilities of the vendors and consultants, the remedies or penalties for breach, and a protocol for adding, removing and modifying metrics as the procurement and implementation process unfolds. SLAs should outline the specific services to be provided, what, if anything will be excluded, conditions of service availability, standards such as time window for each level of, responsibilities of each party, escalation procedures, and cost/service trade-offs.

SLAs should also include measurement standards and methods, reporting processes, contents and frequency, a dispute resolution process, and an indemnification clause protecting Newco from third-party litigation resulting from service level breaches. Newco will want to draft carve-outs for limited liability provisions in the SLAs related to indemnification obligations, breaches of confidentiality, gross negligence, and intentional misconduct. At their core, SLAs should be a reflection of Newco’s technical goals (i.e. availability levels, throughput, jitter, delay, response time, scalability requirements, new feature introductions, new application introductions, security, manageability, etc.), and any constraints or limitations on such goals. The SI will need to prepare software application profiles in order to help define the corresponding scope of the IT network’s service level requirements.

Ultimately, the hardware and IT infrastructure need to support all software application requirements without suffering a downgrade in any network services. The SLAs must articulate the convergence and interplay between Newco’s business requirements, the proposed software application profile, and corresponding IT network requirements such as bandwidth, delay, and jitter. In addition, it is crucial that the SI, vendors and consultants all understand the potential impact on Newco and its customers of any network downtime. Availability and performance standards (i.e. round-trip delay, jitter, maximum throughput, bandwidth commitments, overall scalability, etc.) in the SLAs will create the legal thresholds for the service expectations of Newco. Moreover, service level definitions in the SLA are worthless unless Newco is able to collect metrics and monitor compliance.

Linking Payment Terms to Deliverables

In the various Statements of Work attached to the Services Agreements, whether fixed fees or time and materials, Newco will want clearly defined deliverables with corresponding milestones, an acceptance process for each deliverable, and payment terms tied to the acceptance of those deliverables. A Change Order process is also helpful in avoiding “scope creep” and forcing service providers to stay on budget.

Specific Language To Hold SI And Contractors Accountable For Project Schedule And Budget

Newco’s agreements with SI and contractors must always have timelines for deliverables, definitions of scope of supply of services and products tied to a specific cost structure, and requirements for active and ongoing communication about status.

Allowable Uses For Contingencies

The various risk factors that cannot otherwise be accounted for in a clearly defined statement of work and corresponding fee structure should be clearly outlined in the applicable agreements. Unpredictable costs should be de minimus if Newco has chosen the right products and team to implement them. Material and reasonably unpredictable scope of work errors and miscalculations and unforeseeable implementation issues should be the triggers for use of contingencies. Costs associated with a vendor’s estimating inaccuracies and “scope creep” due to underbidding should not trigger release of any contingency set-asides. The contingency clause should also describe the process by which contingency funds may be accessed, and the paperwork and approvals needed to use contingency funds.

Privacy

Finally, Newco must incorporate information security and privacy protections into every aspect of the IT infrastructure upgrade. This is especially important in light of the evolving body of consumer-oriented privacy laws and regulations governing outsourcing transactions including, but not limited to, the California Consumer Privacy and Protection Act of 2018.

The U.S. Department of Labor recently issued updated model Family and Medical Leave Act (“FMLA”) forms, with an expiration date of August 31, 2021. Other than the expiration date, these forms are identical to the prior forms expiring on August 31, 2018.

The newly issued forms with the August 31, 2021 expiration date should be used in place of the prior forms. Note that the expiration date is found on the top-right corner of the forms.

Note also that the Certification of Health Care Provider for Employee’s Serious Health Condition should be modified by California employers to avoid eliciting the diagnosis of the employee’s medical condition , due to California restrictions on such employer inquiries.

“These three rising stars are part of a bigger push at our firm to reflect the increasing diversity of our clients and, even more importantly, our clients’ desire for the best law talent in the market,” said Ervin Cohen & Jessup’s Co-Managing Partner Barry MacNaughton.

Pateel Tavidian, a Real Estate Associate, focuses on a variety of real estate transactions, including acquisitions and dispositions, property management, and leasing of commercial and office spaces on behalf of both landlords and tenants. Tavidian received her J.D. from Loyola Law School and served as a judicial extern to the Hon. Julia W. Brand of the U.S. Bankruptcy Court, Central District of California.

Banu Naraghi, a Litigation Associate, focuses on corporate and intellectual property litigation in both state and federal court. She has represented a wide range of clients including content creators, investors and corporations in cases involving contract disputes, securities fraud and business torts. Naraghi received her J.D. from the University of Southern California Gould School of Law in 2016, where she was a clinical intern for the free Intellectual Property and Technology Law Clinic, which helps artists, filmmakers, video game developers and start-ups.

The California Legislature is poised to dispense with a cost-effective and expedient method of resolving employment disputes. Specifically, Assembly Bill 3080 seeks to prohibit any person or business from conditioning employment, or any employment-related benefit, on any applicant for employment or employee agreeing to the binding arbitration of disputes that involve any alleged violation of any provision of the California Fair Employment and Housing Act. The bill also includes a prohibition against arbitration agreements that would require an employee to opt out of arbitration. AB 3080 further prohibits an employer from retaliating against an employee who refuses to sign an arbitration agreement. A prevailing plaintiff enforcing his or her rights under the proposed law would be entitled to reasonable attorney’s fees. As presently written, the law would apply to all contracts entered into, extended or modified after January 1, 2019.

AB 3080 is now on the Governor’s desk awaiting his signature. Governor Brown vetoed a similar bill in 2015. In so doing, Governor Brown indicated that such a law would be in conflict with the Federal Arbitration Act (FAA). However, it remains to be seen if he will have the same opinion in the face of considerable support from the #MeToo Movement, plaintiff’s attorneys and other groups who disfavor private arbitration.

AB 3080 also seeks to prevent any person or employer from conditioning employment, or any employment-related benefit, on any applicant for employment, employee, or independent contractor from disclosing to any person an instance of sexual harassment that the employee or independent contractor suffers, witnesses, or discovers in the workplace or in the performance of the contract, or otherwise opposing any unlawful practice, or from exercising any right or obligation or participating in any investigation or proceeding with respect to unlawful harassment or discrimination.

Q: I was appointed receiver in a health and safety case, brought by a city, over a rundown motel and an adjacent rundown office building. The owner of the property, who has been fighting the city, has now filed an action in federal court against the city alleging that the city has violated his constitutional rights and is asking the federal court to set aside the receivership order. Can a federal court do that?

A: The short answer is no. Federal courts, generally, have no power to invalidate or set aside state court orders. Federal courts also, generally, do not have power to review the actions of state courts. State courts are constitutionally entitled to independence. Relief from a state court order should come through the state appellate process or, in rare circumstances, the U.S. Supreme Court. In an unreported case, similar to yours, Sharma v. City of Redding, 2017 WL 2972263 (E.D. Cal. 2017), a receiver was appointed in a nuisance abatement proceeding brought by the city over rundown property. The receiver took possession of the property and determined that rehabilitation would be cost prohibitive, as would demolition of the property. The receiver, therefore, obtained court approval to sell the property “as is” to a willing buyer to enable it to rehabilitate the property. The owner sued the city in federal court contending the city’s actions constituted a taking a property without just compensation, violated procedural due process, violated the owner’s property rights and violated his constitutional guarantee of equal protection. The owner also filed a motion seeking to set aside the state court’s order appointing the receiver as void. In denying that motion, the district court, as indicated above, found there was no authority for the proposition that a federal district court could set aside or otherwise vacate or invalidate an order of a state court in this context. The court also specifically found, because the action by the city was taken in an
enforcement context, to enforce public nuisance laws, which were implemented to regulate an important state interest, the motion was barred by the Younger abstention doctrine, set forth
in Younger v. Harris, 401 U.S. 37, 45 (1971). While that doctrine generally provides that federal courts should not enjoin pending criminal proceedings, it has been extended to actions
which “implicate a state’s interest in enforcing the orders and judgments of its courts.” Sprint Communications, Inc., v. Jacobs, 134 S. Ct. 584, 588 (2013). The test for applying Younger to a civil proceeding states that abstention is required if the state proceedings are: (1) ongoing (2) implicate “important state interests,” and (3) provide an adequate opportunity to raise federal questions. The Ninth Circuit has applied a fourth requirement, that the federal court action would “enjoin the proceeding or have practical effect of doing so.” Gilbertson v. Albright, 381 F.3d 965, 978 (9th Cir. 2004).

Although not mentioned in the Sharma case, the owner’s action might also have been barred by the Rucker – Feldman doctrine, which holds that federal courts should not sit in review of state court decisions unless Congress has specifically authorized such relief; and the Anti-Injunction Act, 28 U. S. C. §2283, which provides: “A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

Assembly Bill 2613 seeks to expand the persons potentially liable to any “person acting on behalf of an employer”. More specifically, liability would attach when an employee is not paid sums owed when due under Labor Code sections 201.3, 204, 204b, 204.1, 204.11, 204.2, 205, and 205.5, and the failure to pay is not the result of “an isolated or unintentional payroll error due to a clerical or inadvertent mistake”. AB 2613 would amend Labor Code section 210 to require an employer or person acting on behalf of an employer to pay a penalty of $200 to each and every affected employee for each pay period where the wages due were not paid on time. This penalty is in addition to other penalties which may apply, except that an employee may not recover penalties both under section 210 and under Labor Code sections 201.3, 204, 204b, 204.1, 204.11, 204.2, 205, or 205.5 for a failure to pay an employee on time. Further, the penalties under the proposed amendment will not apply to failure to pay the final wages of an employee who is discharged or quits, for which penalties under Labor Code section 203 may be recovered.

In essence, AB 2613 would hold an officer, director or manager liable for penalties for any payroll error other than “an isolated or unintentional payroll error due to a clerical or inadvertent mistake”. There is no limitation or standard set for the value of the error, nor is there any limit on the amount of penalties that may accrue. Further, it is clear that these penalties may be sought in a lawsuitat any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise, which means that penalties might be sought for a period of three to four years, depending on the nature of the underlying claim for wages alleged.

We will leave it to the reader to determine if this new penalty is needed, but we note that California already has some of the most onerous and complex labor laws in the country, replete with numerous duplicative penalty provisions within the Labor Code.

“This honor reflects the high standard of excellence that the firm’s attorneys provide to our clients,” said ECJ Managing Partner Barry MacNaughton. “The Business Journal only chooses a select few for this honor, but with his stratospheric level of success, we’re not surprised that Geoff made the cut.”

“Clients appreciate his ability and track record in obtaining significant arbitration awards, favorable mediation results and settlements, grants of summary judgment and trial victories,” the Business Journal wrote.

“For one recent matter, in a 45-day bench trial, Gold won a multi-million dollar judgment arising from a limited partnership dispute against Pacific Medical Plaza Ltd. Partnership in a financial elder abuse and derivative lawsuit,” the Business Journal reported. “Gold also successfully negotiated the resolution of a highly complex lawsuit against the City of Los Angeles and Kaiser Permanente, and just recently filed an eight-figure lawsuit against the City of Los Angeles.”

Gold frequently acts as outside general counsel for small business clients and special counsel for large companies. He has particular expertise in working with developing businesses and assisting individual and corporate clients with their everyday legal affairs. Gold has substantial experience negotiating, documenting and closing difficult real estate transactions and counseling clients on how not only to win, but to avoid litigation.

Gold, a Washington, D.C. native who is married with three sons, is a member of the Executive Board of Directors of Bet Tzedek and is active in a variety of professional, charitable and community associations. He maintains an AV® Preeminent Rating from Martindale-Hubbell, and has been selected for inclusion in Southern California Super Lawyers each year since 2013.

]]>California’s New Privacy Bill of Rights: How The California Consumer Privacy Act of 2018 Will Empower Consumers and Create New Burdens For Data Driven Businesseshttp://www.ecjlaw.com/californias-new-privacy-bill-rights-california-consumer-privacy-act-2018-will-empower-consumers-create-new-burdens-data-driven-businesses-2/
Wed, 08 Aug 2018 15:30:56 +0000http://www.ecjlaw.com/?p=135200Continued]]>California now has the most sweeping and comprehensive privacy rights law in the country — The California Consumer Privacy Act of 2018 (the “Act”). Some might say the Act is the result of Cambridge Analytica misusing the data of tens of millions of Facebook users. Others would suggest that the Act is merely the natural and logical progression of inalienable rights of privacy in the digital age. Whatever the reason, California’s Privacy Bill of Rights for consumers will forever change the way businesses collect and use personal information (“PI”).

Here’s the good news: Companies will have a ramp-up period in order to prepare for compliance. Here’s the bad news: Compliance may be challenging, labor intensive, and potentially costly. Starting on January 1, 2020, the Act gives Californians the following privacy-related rights:

(1) The right to know what PI is being collected about them.

(2) The right to know whether their PI is sold or disclosed and to whom.

(3) The right to “just say no” to, or to “opt-out” of, the sale of PI.

(4) The right to access their PI.

(5) The right to equal service and price, even if they exercise their privacy rights.

(6) The right to have their data deleted.

(7) The right to know the sources from which PI was acquired.

(8) The right to know the commercial purpose of collecting PI.

(9) In addition, businesses must create an “opt-in” process whereby parents or guardians expressly authorize the sale of PI of children under 16.

When interacting with consumers who are exercising these rights, businesses must verify the identity of the consumer. Once verified, the business must promptly take steps to disclose and deliver, free of charge, the PI requested. Whether or not such a request is made, at a minimum, a business that collects such PI has the legal obligation to proactively inform consumers about the categories of PI being collected and purposes for which the PI shall be used. Businesses must also inform consumers of their right to have PI deleted. These requirements of the Act may sound simple and straight forward, but designing and implementing a process to ensure consumers access to these rights will likely be an involved and potentially cumbersome process.

The businesses governed by the Act fall into three categories: (1) Companies that obtain the PI of at least 50,000 California residents annually (the “50K Companies”); (2) Companies with 50% annual revenue being generated from selling the PI of California residents (the “50% Companies”); and (3) Companies with annual gross revenues of $25 million (the “25M Companies”). Collectively, the 50K Companies, 50% Companies, and 25M Companies shall be referred to as “Covered Companies”. The 50K Companies may pass the 50,000 threshold fairly quickly, as the scope of what constitutes “PI” is broad. Many companies, big and small, including, but not limited to, professional service providers, bloggers, social media influencers, retailers, music venues, fitness studios, and others operate websites that automatically capture IP addresses, and those addresses likely constitute PI. Websites that are passively accessible to visitors and generate a lot of traffic may surpass the 50,000 threshold without even realizing it. Unlike the 25M Companies, as long as the 50% Companies generate at least one-half of their revenue from disclosing PI for money (even if that revenue is substantially less than $25 million), they will need to comply with the Act; though there are exceptions including business transfers in bankruptcy and M&A transactions.

If a consumer “opts out” of the sale of PI, Covered Companies are prohibited from discriminating against such consumers for exercising this right. To that end, Covered Companies may not charge consumers who “opt out” a different price or provide such consumers with a different quality product or service. All of that notwithstanding, the Act does authorize Covered Companies to give financial incentives to consumers in exchange for allowing them to collect, use and share PI. However, a Covered Company may not sell the PI of a consumer under 16 unless properly authorized by a parent or guardian.

Although the obligations outlined above will not kick-in for more than a year, Covered Companies should start preparing for compliance immediately with regards to both PI already in their possession as well as PI to be collected in the future. Until the federal government passes more comprehensive legislation to match that of California, Covered Companies should, at a minimum, do the following: (1) Identify, inventory and organize all of the PI of California residents in their possession; (2) Prepare updated privacy policies including the additional disclosures required by, and the various consumer rights listed in, the Act; (3) Update and upgrade their technology platforms and software programs to allow for data access, deletion, and portability requests from California consumers; (4) Obtain prior consent from parents to comply with “opt-in” requests related to children under 16; (5) Set up a toll free number for consumers submitting data access requests; and (6) Provide hypertext links on their homepage enabling users to “opt out” of the sale of their PI altogether.

Covered Companies not in compliance by the deadline should expect civil actions to be filed by the California Attorney General’s Office who will look to secure penalties of $7,500 per intentional violation and $2,500 for any unintentional violations, though unintentional violators will be given 30 days to cure. Approximately twenty percent of the penalties collected by the state shall be allocated to a new “Consumer Privacy Fund” to pay for ongoing enforcement. Therefore, Covered Companies should expect enforcement actions to increase, not decrease, over time as the fund grows. To that end, Covered Companies cannot afford to ignore the Act, which the California legislature has requested be “liberally construed to effectuate its purpose.” The best, if not only, course of action for Covered Companies is compliance. There’s a new sheriff in town y’all. And her name is Privacy.

Jeffrey Glassman is a partner in ECJ’s Business & Corporate Law Department. He represents a wide range of new media and technology companies. Jeffrey advises clients on the evolving body of digital law and complex business transactions in involving intellectual property matters. For questions on this article please contact Jeffrey Glassman at jglassman@ecjlaw.com.

Editor’s Note: As it often falls on human resources personnel to be the bearer of bad news to owners and operators on legal changes that impact California businesses, we thought this article on the new consumer privacy law was worth sharing with our blog subscribers. It is both informative and timely.

]]>Trial Attorney Michael Murphy Joins Ervin Cohen & Jessuphttp://www.ecjlaw.com/trial-attorney-michael-murphy-joins-ervin-cohen-jessup/
Tue, 07 Aug 2018 18:47:56 +0000http://www.ecjlaw.com/?p=135263Continued]]>LOS ANGELES – August 7, 2018 –Ervin Cohen & Jessup is both pleased and proud to announce its newest Partner Michael Murphy. Murphy is an aggressive litigator specializing in corporate governance, real estate, entertainment and general business disputes. An indicator of the high esteem in which Murphy is held in the legal community is that his referral sources include his many courtroom adversaries.

“Basically, anything you hand me, I can do,” said Murphy, who moved over from Gerard Fox Law, where his successes included, among other things, prevailing across the board in an arbitration entitled Mark Steyn Enterprises et. al. v. CRTV LLC. After the bestselling author and political commentator’s TV show with CRTV was unceremoniously canceled, CRTV sued Steyn for $10 million. Not only did Murphy prevail on all claims alleged by CRTV, but also achieved a multi-million dollar victory against CRTV on behalf of Steyn.

“Mike Murphy’s experience in every jurisdiction and specifically in corporate governance and real estate litigation adds to what Ervin Cohen & Jessup already does quite well,” said Barry MacNaughton, the firm’s co-managing Partner. “We’re delighted that the next generation of top talent like Murphy see Ervin Cohen & Jessup as a career destination.”

Murphy says he’s an ace at aggressively, creatively, and efficiently getting cases ready for trial – knowing that a well-prepared case is the best leverage to achieve a good business solution for everybody. “I’m focused on getting a successful judgment, and I know how to get there,” Murphy said.

Murphy volunteers as chairman of the board of directors at Being Alive, a nonprofit providing free psychotherapy and wellness services for under-resourced men and women with HIV. Murphy has an undergraduate degree in Biology, Law & Society from Oberlin College and a J.D. from Berkeley Law.

There are two versions of the model notice form: one is for employers who do offer a health plan to some or all employees, while the other is for employers who do not offer a health plan. Both versions of the updated form can be found here.

The financial elder abuse and fraud cases playing out in court right now surrounding Marvel Comics icon Stan Lee trace back to state laws enacted many years ago like the California Elder Abuse Act, designed to protect those over 65. However, many lawyers remain unfamiliar with them.

Here are 11 pointers on the California Elder Abuse Act for practitioners who may encounter financial elder abuse — the most common and fastest growing form of elder abuse.

First: The act contains a unilateral attorney’s fee and costs provision. If an abused elder prevails by a preponderance of evidence in a financial abuse case by obtaining a net positive monetary award under the act, the elder will be allowed to recover “reasonable attorney’s fees and costs.”[1] But fees and costs will not be awarded to the alleged abuser who defeats the suit. Oddly, in cases of physical abuse, an elder can recover attorney’s fees and costs only if physical abuse is proven by clear and convincing evidence.[2]

Second: A plaintiff is authorized to seek the provisional remedy of an attachment pursuant to the act, a remedy which is otherwise unavailable to tort claimants. The act’s remedies are cumulative, so a plaintiff may seek, among other things, preliminary and permanent injunctive and declaratory relief and the remedy of constructive trust.

Third: Counsel should consider alleging claims for unfair business practices, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty together when pleading a cause of action for financial elder abuse. For instance, if a finding of deceptive acts or unfair business practices directed at a senior is obtained, the fact-finder could treble the monetary award for the senior in certain circumstances under Civil Code § 3345 (a consumer protection statute which applies where penalty or deterrence remedies are authorized).

Thus, not only may statutory punitive damages be awarded under the act, but these damages may be tripled if proper findings are made. Further, elder abuse attorney’s fees and costs may also be subject to trebling under this statute, considering that the statute permits trebling for any “remedy the purpose or effect of which is to punish or deter.” Double damages may also be awarded under Probate Code § 859 if there is breach of fiduciary duty by a trustee or conservator

Fourth: Welf. & Inst. Code § 15657.7 provides that an action for damages for financial elder abuse must be commenced within four years after “the plaintiff discovers or, through exercise of reasonable diligence, should have discovered, the facts constituting financial elder abuse.” But in practice, wrongdoers are normally not in a position to invoke the statute of limitations. “Where a fiduciary relationship exists, facts which ordinarily require investigation may not incite suspicion. … Where there is a fiduciary relationship, the usual duty to discover facts does not exist.”[3]

Fifth: “Financial abuse” of an elder occurs when a person or entity defendant “takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult” for a wrongful use or with the intent to defraud, or takes the property by undue influence, or where a defendant (even one who owes no special duty to the plaintiff) assists another in so doing.”[4] A defendant is “deemed to have taken, secreted, appropriated, obtained or retained property for a wrongful use” if the defendant “knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.”[5] A defendant “takes, secrets, appropriates, obtains or retains real or personal property when the elder … is deprived of any property right, including by means of an agreement, regardless of whether the property is held directly or by a representative of the elder.”[6]

Sixth, neither the competence nor the sophistication of the victim determines who can make a claim for financial elder abuse. Often, the proudest, most savvy, and well-educated fall prey to the unscrupulous because they are self-reliant and in denial about their limitations. For instance, a 75 year old doctor, sharp as a tack, was bamboozled by a representative in a bank who put him in an unsuitable investment, promising returns of at least 4%. The victim doctor discovered almost immediately things were not right—it appeared that all his money had been put in the stock market without his knowledge or consent. He was too embarrassed at first to tell anyone in the family and tried to fix the situation himself. The representative told the victim that the situation would be fixed. It never was. Fortunately, the victim had a relative who is familiar with California elder law. The problem was quickly resolved after threats of legal action, with the bank asserting that the doctor knew what he was doing. What the bank and the broker would have learned had the doctor been forced to file suit is that blaming the victim is not a defense to a financial elder abuse claim.

Sixth: Neither the competence nor the sophistication of the victim determines who can make a claim for financial elder abuse. Often, the proudest, savviest and best-educated fall prey to the unscrupulous because they are self-reliant and in denial about their limitations. For instance, consider the case of a 75-year-old doctor, sharp as a tack, who was bamboozled by the representative of a bank who put him in an unsuitable investment, promising returns of at least 4 percent. The victim discovered almost immediately things were not right — it appeared that all his money had been put in the stock market without his knowledge or consent.

But he was too embarrassed at first to tell anyone in the family, and tried to fix the situation himself. The bank representative told the victim that the situation would be fixed. It never was. Fortunately, the victim had a relative familiar with California elder law. The problem was quickly resolved after threats of legal action, with the bank asserting that the doctor knew what he was doing. What the bank and the broker would have learned had the doctor been forced to file suit is that blaming the victim is not a defense to a financial elder abuse claim

Seventh: Unlike in a normal fraud case, the financial elder abuse claimant need not show actual or reasonable reliance to her detriment. Let us consider a case in which a financial adviser causes his senior victim to disproportionately capitalize the adviser’s family’s risky real estate partnership investment. When the adviser obtains advances of money for this investment from the senior, the advances are treated on the books as capital contributions. When the adviser’s family contributes funds in the same investment, they are booked as loans. Then the adviser causes capital distributions to be made to his kids so they can pay taxes, while the senior victim receives no similar distributions.\

The senior sues for financial abuse. At trial, the abuser says that he meant well, that the victim should have known she was being treated unfairly and unequally, and that she failed to object or do anything about it. The abuser asserts there was no actual or justifiable reliance, because the victim would have acquiesced to the treatment anyway, and she did no due diligence. That the victim may have been deficient in managing her affairs misses the point: Financial elder abuse is a form of fraud where no actual or reasonable reliance must be shown — and in some instances, no intent to defraud need be shown either.

Eighth: When presented with a potential financial abuse claim, the practitioner should consider as a possible defendant everyone who had a close relationship with the victim, and may have known about the abuse. Failure to act by a professional who should have disclosed wrongful conduct may support a claim for financial elder abuse, such as where a lawyer engaged in self-dealing,[7] or where an accountant prepared tax returns for both the victim and the abuser, yet did nothing to alert the victim she was treated inequitably. Accountants, attorneys, brokers and other fiduciaries may be sued for assisting, by silence, the commission of a bad act; simply not disclosing facts about mistreatment is enough to support a claim.

Ninth: An elder may not remember all material facts or who was involved, and may omit crucial information out of embarrassment, shame of even fear. The elder may believe that telling the whole story may cause a relative to limit the elder’s independence, and even worse, initiate conservatorship proceedings.The elder may not notice irregularities or even bother to read documents.

I had an elder client who never realized until we were midway through litigation that signatures on some documents were not hers, after she had testified mistakenly in deposition that the signatures were her own. It is important to get a tolling agreement from all potential defendants and to make efforts to recover documents quickly because the victim may be ill-informed or unaware. Sometimes, a client may be best advised to sue first on information and belief, if it isn’t possible to obtain a tolling or the information needed to make a decision about who to sue. It is wise to err on the side of inclusion.

Tenth: The practitioner should obtain all relevant documents, subpoena records and get forensic and other experts to help. In a case where we represented the estate of an elder and obtained a $1.8 million settlement just before jury selection,[8] it was an uphill fight until we finished expert discovery. We knew that the elder had contributed funds and had proof of crookedness by the abuser, but until we gathered bank and backup financial records and invoices and hired a forensic expert, we could not prove how much money was taken from the victim and where the money went. The abuser had claimed the money went into a partnership construction project. While some of the money was used properly, we discovered double-charging and embezzlement.

Eleventh: Watch out for corporate real estate defendants in elder abuse cases. If an elder abuse claimant is a shareholder or limited partner and the defendants are majority owners, defendants may argue that the only claim is a derivative one (as if one must elect the sole theory to try at the outset). This is a common game played by corporate real estate defendants in elder abuse cases. Don’t fall for it! The victim should plead and pursue both direct individual claims and derivative claims. Sometimes this is a gray area, but plaintiffs should avoid getting caught failing to state alternative claims and be barred.

Other games defendants may play include demanding that a bond be posted as a requirement for a derivative suit, or trying to take away the plaintiff’s jury trial right by arguing that derivative claims dominate and should be bifurcated and tried first to the court. Similarly, to frustrate dissolution claims, defendants may move to initiate an expensive statutory buy-out procedure that would be unfavorable to the elder. Careful pleading and strategic thinking is required when combining financial elder abuse claims with accounting, dissolution and direct and derivative causes of action for breach of fiduciary duty in the same action involving a corporate entity in which the elder is a minority investor.

Geoffrey M. Gold is a trial lawyer specializing in business and real estate matters at Ervin Cohen & Jessup of Beverly Hills.

Disclosure: The author served as counsel in Rose v. Bolin, discussed in this article.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Last Thursday, the California Supreme Court issued a ground-breaking decision that severely limits employers’ ability to rely on the ‘de minimis’ doctrine as a defense to not paying for minimal increments of off-the-clock work. The ‘de minimis’ doctrine has been applied by federal courts to find that employers do not need to pay for small increments of time worked by employees where the increments are difficult to track, trivial, or irregular. California, however, has rejected the federal standard.

A Starbucks shift supervisor, Douglas Troester, filed suit in 2012 on behalf of himself and a putative class of all nonmanagerial employees who performed similar duties, alleging that Starbucks had required him to clock out on every closing shift before performing tasks such as activating an alarm system, locking the door, transmitting sales information to corporate headquarters, and occasionally reopening the store so a coworker could retrieve a coat. The time spent performing these various off-the-clock tasks totaled approximately 12 hours and 50 minutes over the course of his 17 months of employment. Mr. Troester’s unpaid time added up to around $103 in wages. The California Supreme Court held that this time was compensable. The California decision, titled Troester v. Starbucks Corp., will have significant consequences for all California employers that employ workers paid by the hour.

The new California standard established by Troester holds that employers must track and pay for time spent on all regularly occurring tasks, even if the tasks take only a few minutes. The reasoning is that employers are in the best position to track the time worked by their employees and that technology has progressed to make tracking small bits of time more feasible. Further, the Court indicated that what Starbucks called ‘de minimis’ was “not de minimis at all to many ordinary people who work for hourly wages.” In Mr. Troester’s case, the $103-worth of alleged off-the-clock work was “enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares.”

Of note for employers, the decision leaves open some room for interpretation. The Troester opinion states: “We leave open whether there are wage claims involving employee activities that are so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on them.”

However, no employer should want to test this area of interpretation. Instead, employers should take extra precautions to track time spent by employees completing seemingly quick and minor tasks while off-the clock. This may involve changing procedures for clocking in and out as well as changing employer attitudes towards how strictly employee time should be monitored. As the recent Troester v. Starbucks decision demonstrates, little increments of employee time can add up and result in very costly lawsuits.

]]>PROPOSED LAW WILL MAKE IT EASIER TO FILE DISCRIMINATION AND HARASSMENT CLAIMS AGAINST CALIFORNIA EMPLOYERShttp://www.ecjlaw.com/proposed-law-will-make-easier-file-discrimination-harassment-claims-california-employers/
Tue, 24 Jul 2018 15:30:49 +0000http://www.ecjlaw.com/?p=135212Continued]]>

Senate Bill 1300 (Jackson) seeks to expand liability in discrimination and harassment by lowering the legal standard for legal claims. Currently, only harassment that is “severe or pervasive” is actionable. As such, the law is not designed to allow claimants to bring claims based on a single offensive remark or act. SB 1300 creates a new private right of action for failure to prevent harassment or discrimination which is written to significantly lower that standard by providing that a claimant need only prove “that the conduct would meet the legal standard for harassment or discrimination if it increased in severity or became pervasive.” (emphasis added).

If passed into law, SB 1300 would create a basis for a lawsuit against every employer for any vulgar or insensitive comment. The law would apply to both independent contractors and employees and will undoubtedly lead to an increase in the number of claims filed.

In addition, SB 1300 seeks to expand sexual harassment training requirements from the current standard which states that employers with 50 or more employees or independent contractors must train supervisors every 2 years or within 6 months of promotion or hire. The new standard would apply training requirements to all employees and all employers subject to the Fair Employment and Housing Act, along with expanded bystander intervention training.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2018. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.

Q: I am a federal receiver. One of the assets in the estate is a small office building. I want to list it with a broker and sell it. My attorney told me that before I can sell the property through a broker I have to have the court appoint three (3) appraisers to appraise the property and then the sales price has to be at least two-thirds (2/3) of the appraised value. This is madness. Is there any way
around this? Do I need a new attorney?

A: No, you don’t need a new attorney. Your attorney correctly informed you of some of the requirements for a federal receiver to sell real property at a private sale. 28 U.S.C. § 2001 governs the sale of realty by a receiver. That statute provides, in summary, that before confirmation of any private sale the court shall appoint three disinterested persons to appraise the property. No private
sale shall be confirmed at a price less than two-thirds of the appraised value. Before confirmation of any private sale the terms shall be published in a newspaper of general circulation as the court directs at least ten (10) before confirmation of the sale. A private sale shall not be confirmed if a bona fide offer is made, under conditions prescribed by the court, which guarantees at least a 10% increase over the price offered in the private sale.

Because the statute, in a number of instances, uses the word “shall” these provisions are mandatory. Numerous cases have so held and have indicated the court has no discretion to waive
these mandatory provisions. Acadia Land Co. v. Horuff, 110 F.2d, 354-55 (5th Cir. 1940) (“all the requirements are, by the expressed terms of the statute, made conditions precedent to a valid sale”). Not only is the mandatory language clear, but the companion statute, regarding sales of personal property by a receiver, provides: “Any personalty sold under any order or degree of any court of the United States shall be sold in accordance with § 2001 of this title, unless the court orders otherwise.” 28 U.S.C. § 2004 (emphasis added). Because Congress added the: “unless the court orders otherwise“ language to the statute for sales of personal property, but did not similarly so provide in the statute relating to sales of real property, courts have held it is clear that the district court has no discretion to waive the requirements set forth in § 2001, relating to private sales of real property by a receiver. SEC v. Wilson, 2013 WL 1283437 *1 (E.D. Mich. 2013 (citations
omitted) (“[I]t is at the district court’s discretion whether to obtain appraisals before foreclosing on personal property. However, ‘Congress did not confer similar discretion on the court’ in enacting section 2001 for the sale of real property. Under section 2001(b), ‘[t]he court shall appoint three appraisers – no ordering otherwise. No discretion, period.’”); SEC v. T – Bar Resources LLC, 2008 WL 4790987 *3 (N.D. Tex. 2008) (“in allowing courts to order the private sale of personal property, 28 U.S.C. § 2004 informs that courts are to follow the same procedures in §2001(b), ‘unless the court orders otherwise.’ Congress thus considered deviating from the rigors of § 2001(b) procedures in relaxing the process for the sale of personalty. The absence of any such authorization in the sale of realty suggests that Congress intended the more stringent procedures is to be the rule when ordering the sale of real property”).

Because of the stringent, and often expensive, requirements for a federal receiver to sell real property by private sale, some receivers have tried to convince district courts that the court can somehow waive, or the parties can waive, the mandatory requirements of § 2001(b), arguing the court can approve sales if it finds them in “the best interests of the estate.” While some district courts have allowed private sales by receivers without complying with the requirements of § 2001(b), those orders and unreported decisions appear to be incorrect. For example, in SEC v. Yin Nan Wang, 2015 WL 12656907 (C.D. Cal. 2015), a magistrate approved a private sale without the receiver complying with the appraisal requirements or the publication requirements in §2001(b) because the parties stipulated that the receiver could sell the property without doing so. In approving the sale the court cited to another unreported decision Huntington National Bank v. Najero, Inc., 2014 WL 5473054, *1 (E.D. Mich. 2014) (“Najero”) and quoted a line from that case which stated: While “the court cannot waive the requirements of § 2001(b), the requirements can be waived by the parties.” A review of the Najero case, however, shows that the court there actually denied the receiver’s motion to sell. In denying the motion the court, citing a number of other cases, stating: “The permissive language allowing the Court discretion to determine what is in the best interest of the estate is therefore limited by the minimum standards delineated by Congress of what satisfies the best interest standard. These standards cannot be waived by this Court. The word shall in 2001(b) unambiguously means must, and so this Court interprets the word just so. Before confirmation of any private sale, a court must appoint three disinterested persons to appraise the property. One will not do.”Najero at *1 (emphasis in original, citations omitted). The Najero court then went on, in dicta, to cite another unreported case, Huntington National Bank v. Big Sky Development Flint, LLC, 2010 WL 3702361 (E.D. Mich. 2010), where the court approved the sale of property by a receiver who did not comply with § 2001(b) because the court held the parties had stipulated – in the order of appointment – that the receiver could sell property without complying with § 2001. There was no such provision in the order appointing the receiver in the case before the Najero court and, therefore, the court denied the receiver’s motion to approve the sale.

The assertion, therefore, that the parties can waive the mandatory requirements of §2001(b), giving the court authority to approve a receiver’s sale of real property is very questionable. Generally, courts have no authority to waive mandatory requirements imposed by statute, nor do parties. Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004) (“[W]hen the statue’s language is plain, the sole function of the courts – at least where the disposition required by the text is not absurd – is to enforce it according to its terms”).

Therefore, if you, as receiver, want to sell real property by private sale you need to comply with the requirements of § 2001(b). However, there is no requirement that you have to sell real property by private sale. The onerous requirement of obtaining three appraisals and then not being able to sell the property for less than two-thirds of the appraised value do not exist if a receiver wants to sell real property by public sale.

28 U.S.C. § 2001(a) and § 2002 govern the sale of real property by public sale. All they require is that the sale be conducted at the courthouse of the county, parish or city in which the greater part of the property is located or on the parcel itself, as the court directs; that the sale be upon such terms and conditions as the court directs; and that notice of the sale be published once a week for at least four weeks prior to the sale in at least one newspaper of general circulation in the county, state or judicial district where the property is situated.

There are many companies that can conduct public sales of real property. Such sales do not have to be limited to live absolute auctions, but can consist of sealed bid auctions, minimum bid auctions, or auctions with a reserve, whichever the receiver and the Court believe would be in the best interest of the estate. Therefore, if you do not want to comply with the mandatory requirements set for in the statute for a private sale, you may want to consider selling the property by public sale.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

California now has the most sweeping and comprehensive privacy rights law in the country — The California Consumer Privacy Act of 2018 (the “Act”). Some might say the Act is the result of Cambridge Analytica misusing the data of tens of millions of Facebook users. Others would suggest that the Act is merely the natural and logical progression of inalienable rights of privacy in the digital age. Whatever the reason, California’s Privacy Bill of Rights for consumers will forever change the way businesses collect and use personal information (“PI”).

Here’s the good news: Companies will have a ramp-up period in order to prepare for compliance. Here’s the bad news: Compliance may be challenging, labor intensive, and potentially costly. Starting on January 1, 2020, the Act gives Californians the following privacy-related rights:

(1) The right to know what PI is being collected about them.

(2) The right to know whether their PI is sold or disclosed and to whom.

(3) The right to “just say no” to, or to “opt-out” of, the sale of PI.

(4) The right to access their PI.

(5) The right to equal service and price, even if they exercise their privacy rights.

(6) The right to have their data deleted.

(7) The right to know the sources from which PI was acquired.

(8) The right to know the commercial purpose of collecting PI.

(9) In addition, businesses must create an “opt-in” process whereby parents or guardians expressly authorize the sale of PI of children under 16.

When interacting with consumers who are exercising these rights, businesses must verify the identity of the consumer. Once verified, the business must promptly take steps to disclose and deliver, free of charge, the PI requested. Whether or not such a request is made, at a minimum, a business that collects such PI has the legal obligation to proactively inform consumers about the categories of PI being collected and purposes for which the PI shall be used. Businesses must also inform consumers of their right to have PI deleted. These requirements of the Act may sound simple and straight forward, but designing and implementing a process to ensure consumers access to these rights will likely be an involved and potentially cumbersome process.

The businesses governed by the Act fall into three categories: (1) Companies that obtain the PI of at least 50,000 California residents annually (the “50K Companies”); (2) Companies with 50% annual revenue being generated from selling the PI of California residents (the “50% Companies”); and (3) Companies with annual gross revenues of $25 million (the “25M Companies”). Collectively, the 50K Companies, 50% Companies, and 25M Companies shall be referred to as “Covered Companies”. The 50K Companies may pass the 50,000 threshold fairly quickly, as the scope of what constitutes “PI” is broad. Many companies, big and small, including, but not limited to, professional service providers, bloggers, social media influencers, retailers, music venues, fitness studios, and others operate websites that automatically capture IP addresses, and those addresses likely constitute PI. Websites that are passively accessible to visitors and generate a lot of traffic may surpass the 50,000 threshold without even realizing it. Unlike the 25M Companies, as long as the 50% Companies generate at least one-half of their revenue from disclosing PI for money (even if that revenue is substantially less than $25 million), they will need to comply with the Act; though there are exceptions including business transfers in bankruptcy and M&A transactions.

If a consumer “opts out” of the sale of PI, Covered Companies are prohibited from discriminating against such consumers for exercising this right. To that end, Covered Companies may not charge consumers who “opt out” a different price or provide such consumers with a different quality product or service. All of that notwithstanding, the Act does authorize Covered Companies to give financial incentives to consumers in exchange for allowing them to collect, use and share PI. However, a Covered Company may not sell the PI of a consumer under 16 unless properly authorized by a parent or guardian.

Although the obligations outlined above will not kick-in for more than a year, Covered Companies should start preparing for compliance immediately with regards to both PI already in their possession as well as PI to be collected in the future. Until the federal government passes more comprehensive legislation to match that of California, Covered Companies should, at a minimum, do the following: (1) Identify, inventory and organize all of the PI of California residents in their possession; (2) Prepare updated privacy policies including the additional disclosures required by, and the various consumer rights listed in, the Act; (3) Update and upgrade their technology platforms and software programs to allow for data access, deletion, and portability requests from California consumers; (4) Obtain prior consent from parents to comply with “opt-in” requests related to children under 16; (5) Set up a toll free number for consumers submitting data access requests; and (6) Provide hypertext links on their homepage enabling users to “opt out” of the sale of their PI altogether.

Covered Companies not in compliance by the deadline should expect civil actions to be filed by the California Attorney General’s Office who will look to secure penalties of $7,500 per intentional violation and $2,500 for any unintentional violations, though unintentional violators will be given 30 days to cure. Approximately twenty percent of the penalties collected by the state shall be allocated to a new “Consumer Privacy Fund” to pay for ongoing enforcement. Therefore, Covered Companies should expect enforcement actions to increase, not decrease, over time as the fund grows. To that end, Covered Companies cannot afford to ignore the Act, which the California legislature has requested be “liberally construed to effectuate its purpose.” The best, if not only, course of action for Covered Companies is compliance. There’s a new sheriff in town y’all. And her name is Privacy.

Jeffrey Glassman is a partner in ECJ’s Business & Corporate Law Department. He represents a wide range of new media and technology companies. Jeffrey advises clients on the evolving body of digital law and complex business transactions in involving intellectual property matters. For questions on this article please contact Jeffrey Glassman at jglassman@ecjlaw.com.

Q: I was appointed receiver for a corporation. My order of appointment gives me, and me alone, the power to file bankruptcy for the corporation. The former president of the corporation is threatening to file a bankruptcy petition for the corporation in an apparent attempt to oust me. Can he do that?

A: The answer depends on the specific language of your order of appointment. If it specifically vests you, and only you, with the power to file a voluntary bankruptcy for the corporation, then the former president has no right to do so. A number of recent cases have pointed out there is a major difference between prohibiting a corporation, or even a partnership, from filing a bankruptcy, which cannot be done, and specifying who has the ability to commence a bankruptcy for a corporation or a partnership.

In one of the most recent cases to discuss this issue, Sino Clean Energy Inc. by and through Baowen Ren vs. Seiden, 563 B.R. 677 ( Nev. 2017), the order appointing the receiver for a corporation specifically empowered the receiver to pick a new board of directors for the corporation. The receiver did so, replacing the old board. Members of the former board filed a voluntary petition on behalf of the corporation. The receiver moved to dismiss the bankruptcy, arguing that the former directors had no authority to file the bankruptcy petition on behalf of the corporation. The bankruptcy court agreed and dismissed the bankruptcy. The directors appealed and the district court affirmed. The bankruptcy court had concluded that the case must be dismissed because only a corporation’s current directors can act on its behalf. Therefore, the former directors had no authority to act for the corporation and file the bankruptcy petition. The district court agreed with this analysis. While the appellants argued that a state cannot prevent a corporation from filing bankruptcy, the district court pointed out that the appellants were blurring the line between the rule
preventing states from barring corporations from filing bankruptcy and the long standing rule empowering states to determine who gets to file bankruptcy for an entity in the first place. It pointed out that state law governs whether a person is authorized to file a bankruptcy petition on behalf of a corporation. It distinguished cases deciding otherwise, because they too appeared to have blurred this distinction. In support of its decision the court relied on an older Ninth Circuit case, Oil & Gas vs. Duryee, 9 F.3d 771 (9th Cir. 1993). There a rehabilitator was appointed for an insurance company and the former president filed a bankruptcy petition for the company. In affirming dismissal the court held that the former president had no power to file a petition on behalf of the entity. “[W]hen Becker-Jones purported to file the bankruptcy… he was an impostor; his action is null and void.” Id. at 773.

In an unreported decision from the Central District of California, In re Licores, 2013 WL 6834609 (C.D. Cal. 2013), the District Court upheld the dismissal of a bankruptcy petition where a receiver had been appointed over a partnership. The order appointing the receiver vested the receiver with the sole power to file bankruptcy on behalf of the partnership and specifically ordered that certain former partners were prohibited from filing a bankruptcy petition on behalf of the partnership. Despite that fact, the former partners filed a petition anyway. The bankruptcy court granted the receiver’s motion to dismiss, finding the debtor lacked authorization to file bankruptcy in view of the order vesting the receiver with the exclusive authority to file. In affirming, the district court again distinguished the argument made by appellants that states lack authority to enter orders preventing corporate officers or partners from the commencing bankruptcy proceedings because that was not what occurred. It points out that state law governs who may act on behalf of an entity outside of bankruptcy and, therefore, may determine who may bring an entity into bankruptcy. The receivership order specified who may and who may not file bankruptcy for the partnership and that was permissible. See, Commodity Futures Trading Commission v. FITC Inc., 52 B.R. 935 (N.D. Cal. 1985) (“Once a court appoints a receiver, the management loses the power to run the corporation’s affairs. The receiver obtains all the corporation’s power and assets. Thus it was the receiver, and only the receiver, who this court empowered with the authority to place FITC in bankruptcy.”).

Parties drafting the receivership orders who seek to prevent ousted principles or control persons from divesting the receiver should make sure that the order of appointment makes clear who
has the power and who doesn’t have the power to act on behalf of the entity placed in receivership, including the power to commence a bankruptcy case. Something along the following lines might be considered: “The receiver shall be vested with, and is authorized, directed and empowered to exercise, all of the powers of the receivership defendant, its officers, directors, shareholders and general partners or persons who exercise similar powers and performs similar duties; and the receivership defendant, its officers, agents, employees, representatives, directors, successors in interest, attorneys in fact and all other persons acting in concert or participating with them, are hereby divested of, restrained and barred from exercising any powers vested herein in the receiver.”

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

California employers can now include back-of-the-house workers (e.g., dishwashers, cooks, and chefs) in their tip pool systems. The rule seems simple enough, however, the path to this conclusion was a rather contentious journey. Moreover, the current law on tip-pooling is subject to qualifications that require examination of both California and federal law, with which California employers must also comply.

California grappled with the issue of which workers should be included in tip pools before the recent changes announced by the federal government. In the seminal 1990 case on tip pooling, Leighton v. Old Heidelberg, Ltd., a California appellate court upheld a tip-pooling arrangement among servers, bussers, and bartenders, stating that tip pools are permissible as long as they are “reasonable” and the employer does not retain any portion of the tips. The Old Heidelberg case focused on which employees had “touched the table,” since the court presumed that when a patron left a tip, it was meant for someone with whom the patron had contact.

Over the next several years, California appellate courts revisited the issue of tip pooling, further defining which persons should be included in tip pools. Among these cases was the Jameson v. Five Feet Restaurant decision which explained how employees with management duties may not share in a tip program.

Then, in 2009, a California appellate court approved a mandatory tip-pooling policy requiring servers to pay out a share of their tips to the kitchen staff, bartenders, and dishwashers in a decision entitled Etheridge v. Reins Int’l California, Inc.

On the federal front, in March of this year President Donald Trump signed into law the omnibus budget bill, the Consolidated Appropriations Act of 2018. The Act contains a two-page amendment to the rules regarding “tipped employees” in the Fair Labor Standards Act that allows tips to be shared with back-of-the-house employees and prohibits managers and supervisors from participating in the tip pool. As a result, California law and federal law now share a common rule that employers may include kitchen staff in a legitimate tip pool.

However, important differences remain between federal law and California law on tip pooling. Under federal law, employers may use customer tips as a “credit” against their minimum wage obligations for tipped employees. In contrast, California law prohibits any tip credits. Moreover, it is unclear how federal law will ultimately define which management personnel must be excluded from a tip pooling arrangement.

Employers should also exercise caution to ensure that their tip pools meet other tests under the law, which include satisfying the following factors:

No management personnel may participate in the pool;

The percentages are reasonable; and

Other personnel who participate are appropriate participants.

Aside from the various factors outlined above, employers should consider the practicalities of including additional persons in a tip pool. For example, expanding any tip pool to include more workers will necessarily mean that others will not be making as much money as they once did, which may have an adverse impact on morale and employee retention.

This article is intended as a brief overview of a rather complicated subject. Although it is now clear that both federal and California law permit the inclusion of back-of-the-house staff in tip pools, open questions remain on how the criteria governing tip pooling systems should look in application. For inquiries regarding how to structure or revise tip pooling arrangements, employers should contact legal counsel.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2017. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog, contact kbrooks@ecjlaw.com of ECJ’s Employment Law Department.

“This honor reflects the high standard of excellence that the firm’s attorneys provide to our clients,” said Ervin Cohen & Jessup Co-Managing Partner Barry MacNaughton. “Only 2.5 percent of attorneys statewide are selected to the list, and the designation is especially meaningful when it comes from our peers in the profession.”

The national rating service annually identifies outstanding lawyers from more than 70 practice areas who attained a high degree of peer recognition and professional achievement.

The following ECJ lawyers were selected in their practice areas for 2018:

Ori Blumenfeld, attorney in the firm’s Bankruptcy, Receivership and Creditors’ Rights Group; Blumenfeld was also selected for the Up-and-Coming 100, which lists those professionals at the top of the Rising Stars list

You know the drill: all managers and supervisors who are employed in California are required by law to complete at least two hours of interactive Harassment & Bullying Prevention training. The training must take place every two years and within six months of promotion or hire. This workshop will not only meet these educational requirements, but exceed them. You will learn situation-specific techniques regarding the prevention and correction of all types of harassment under both federal and state law, as well as training that complies with the recent law on the prevention of abusive conduct in the workplace. In addition, you will walk away with a practical understanding of the remedies available to victims of harassment as well as the defenses employers have at their disposal. Presented in a lively, entertaining and engaging format, what you learn in this workshop will stay with you for the next two years… and beyond.

In a new ruling with dramatic consequences for the gig economy, the California Supreme Court made it harder to classify workers as independent contractors. For the past thirty years, the test for determining whether a worker qualifies as an independent contractor chiefly relied on the level of control the company exerted over the worker, a rather malleable concept that could be applied to qualify a wide range of workers as independent contractors, which companies had seen as beneficial since independent contractors generally cost companies less and are not subject to government regulations requiring tax withholdings, overtime compensation, minimum wage, and meal and rest breaks. However, in the class action case of Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court did away with the old, flexible rules and instituted the more restrictive, albeit easier to apply, “ABC test” already used in New Jersey and Massachusetts.

Under the “ABC test,” the Court presumes all workers qualify as employees. A worker may be classified as an independent contractor only if the employer can demonstrate that the worker:

(A) is free from the control and direction of the employer in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) performs work that is outside the usual course of the employer’s business; and

(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The employer must be able to prove all three criteria. While part A of the test is similar to, and a key part of, the prior tests used by California courts as well as several government agencies, parts B and C represent significant departures from past tests and are particularly difficult for employers to meet. To explain these requirements, the Court provided examples: A plumber temporarily hired by a store to repair a leak or an electrician to install a line would be an independent contractor. In contrast, a seamstress who works at home to make dresses for a clothing manufacturer from cloth and patterns supplied by the company, or a cake decorator who works on a regular basis on custom-designed cakes would be employees. An employer may evade classification of its worker as an employee “only if the worker is the type of traditional independent contractor” who would be understood as working “in his or her own independent business.”

The Dynamex ruling turns California’s gig economy on its head. Trucking companies, entertainment productions, and app-driven service businesses, such as Uber and Lyft, had relied upon the old, vague test to classify businesses with whom they routinesly contracted to complete various operations associated with their core or usual business operations as independent contractors. The defendant in this case, Dynamex Operations West, Inc., is prototypical of these gig industries. Dynamex is a package and document delivery service that hires drivers as independent contractors. Dynamex’s delivery drivers may set their own schedules, remain free to choose whether to accept or reject an assignment, and receive pay based on a flat fee or percentage of the delivery fee. Although the Dynamex decision did not resolve whether Dynamex’s drivers had in fact been misclassified as independent contractors, but rather provided guidance for lower courts that had been struggling with the issue, it is hard to imagine that the drivers will be allowed to remain classified as independent contractors after the ABC test is applied.

The reason for the Dynamex Court’s overthrow of the old, flexible classification standards was stated as follows: “When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor … there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification.” The Court stressed that California’s wage and hour laws were adopted to enable people to earn a subsistence standard of living and to protect workers’ health and safety. Moreover, the Court observed that the laws shield the public from having to assume financial responsibility for workers earning substandard wages or working in unhealthy or unsafe conditions.

Although the ABC test is certainly easier to apply than the prior test, the Dynamex decision leaves unanswered questions. The Court limited its ruling to California’s wage orders, which set rules on basic working conditions and minimum pay. It is thus unclear what test or standard should apply for workers’ compensation and tax purposes, leaving open the possibility that a worker may be classified in different ways for different purposes. This is likely to be a topic of future litigation.

All companies in California need to reevaluate their relationships with their independent contractors and adjust them as necessary to comply with the ABC test imposed by Dynamex. Failure to properly classify workers can result in steep fines for employers. In the very near future, we can expect to see a wave of class actions alleging misclassification and large-scale restructuring for California’s gig-based business models. Without a doubt, the Dynamex decision is a game-changer that requires a fresh look at worker classifications to minimize potential exposure.

Great News for Employers: U.S. Supreme Court Upholds Arbitration Class Action Waivershttp://www.ecjlaw.com/great-news-employers-u-s-supreme-court-upholds-arbitration-class-action-waivers/
Wed, 23 May 2018 15:30:10 +0000http://www.ecjlaw.com/?p=135123Continued]]>On Monday, May 21, 2018, in a 5-4 opinion, the United States Supreme Court issued a long-awaited decision in the case, Epic Systems Corp. v. Lewis, on the issue of the enforceability of class action waivers in arbitration agreements that bar employees from joining together in class action claims, holding such waivers to be enforceable. Employers now have the benefit of including class action waivers in arbitration agreements without the uncertainty of the last several years, when jurisdictions differed regarding their enforceability.

The challenge to enforceability in the case rested on the argument that the National Labor Relations Act (the “NLRA”) provides employees the right to seek relief on a class basis. The Supreme Court ultimately concluded that the NLRA does not override the Federal Arbitration Act, which requires courts to enforce agreements to arbitrate, including the terms of arbitration selected by the parties.

This decision consolidated three cases that represented a split among federal court circuits.
The three cases include Morris et al v. Ernst & Young, LLP, in which the U.S. Court of Appeals for the Ninth Circuit, which includes California, rendered a decision contrary to the current Supreme Court ruling.

The author would like to gratefully acknowledge the assistance of Joanne Warriner.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2018. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.

]]>Receiver’s Use Of An Elisor When A Party On Title Won’t Sign Documentshttp://www.ecjlaw.com/receiver-use-elisor-party-title-wont-sign-documents/
Thu, 17 May 2018 15:30:12 +0000http://www.ecjlaw.com/?p=135079Continued]]>

Q: I am a receiver in a family law matter. There is a property held in the name of an LLC, wholly owned by one of the parties. The court has authorized me to sell the property, but the party on title refuses to sign the escrow documents and deed. While I could bring a contempt motion, that is a long, drawn out and expensive undertaking. My broker asked me why I couldn’t just ask the court to appoint me or the clerk as an elisor to sign the documents and deed. What is an elisor?

A: An “elisor” is person appointed by the court to perform functions like the execution of a deed or document. A court typically appoints an elisor to sign documents on behalf of a recalcitrant party in order to effectuate its judgments or orders where the party refuses to execute such documents. Blueberry Properties LLC v. Chow, 230 Cal. App. 4th 1017, 1020 (2014). In California, the authorization to appoint an elisor is found in C.C.P. § 128 (a)(4) which provides the court has the power: “To compel obedience to its judgments, orders, and process and to the orders of a judge out of court, in an action or proceeding pending therein.” In the Blueberry Properties case, the defendant had entered into an agreement to sell an apartment complex. She refused to complete the sale and Blueberry Properties brought an action for specific performance. The parties then settled, with the defendant agreeing to sell the property to Blueberry Properties as originally agreed to. She, however, once again failed to comply. The court then entered judgment pursuant to C.C.P. § 664.6, requiring the defendant to execute all documents necessary to complete the sale. The defendant, however, refused to execute the documents. Blueberry Properties then filed a motion to have the clerk appointed as an elisor to execute the deed and other documents, which the court granted. On appeal that order was upheld. In another very recent case, SEC v. BIC Real Estate Development Corporation et. al., 2017 WL 2619111 (E.D. Cal. 2017) (“BIC”), a receiver was appointed in an SEC enforcement action where the defendants, just prior to the receivership, had transferred fractional interests in certain real properties it owned to certain investors. The order appointing the receiver provided that all persons in possession or control of receivership assets must give control of that property to the receiver. The receiver reached out to investors holdings fractional interests in the properties and requested that they be reconveyed so that the receiver could sell the properties. While most investors complied with the receiver’s request, a number of investors failed to do so. The receiver, therefore, filed a motion requesting that the court appoint him as elisor, so that the fractionalized interests could be transferred back to the receivership estate. The court cited Blueberry Properties, supra, and also federal cases where courts also recognized the use of elisors to enforce their orders. Id. at *3.

One interesting part of the BIC decision is the court’s discussion of the use of summary procedures. The receiver had not sued the holders of the fractionalized interests. He merely filed a motion, which he served on them. Citing a number of cases, the court held that summary proceedings are appropriate and proper to protect equity receivership assets, so long as the third parties are afforded due process and have adequate notice and an opportunity to be heard. This part of the decision, however, is questionable, given Ninth Circuit’s decision in SEC v. Ross, 504 F.3d 1130 (9th Cir. 2007), where a receiver filed a motion in an SEC case against a number of sales agents seeking to have them disgorge $21 million in commissions they had received from the sale of unregistered securities. Some of the agents opposed the motion, arguing the court lacked personal jurisdiction over them because they had not been served with a summons and that proceeding by the way of summary proceedings violated their rights to due process. The district court rejected that argument, indicating the third parties were only required to receive notice of the motion and have a reasonable opportunity to be heard. The Ninth Circuit, however, reversed. It held the agents’ due process rights were violated when the receiver proceeded to attempt to have agents disgorge the funds they received by use of a summary proceeding. The Ninth Circuit distinguished a number of cases, many of which the court in BIC, supra., cites, on the ground that in those cases the parties subject to the summary of proceedings had submitted themselves to the court’s jurisdiction, by either filing claims to receivership assets or by having participated in the receivership proceeding. The Ninth Circuit admonished the receiver and the SEC for trying to take improper shortcuts and concluded that if the receiver wanted to recover purported improper distributions, the receiver needed to file complaints and serve the agents with a summons.

Based on the Ninth Circuit’s decision in Ross, it is questionable whether appointing the receiver as an elisor to recover the transferred fractionalized interests would hold up on appeal, if the matter were appealed, which is unlikely, given the fact that the district court indicated that the receiver’s motion was not opposed by any party; which may be the reason why no one cited the court to the Ninth Circuit’s decision in Ross. Therefore, while use of an elisor is a good remedy to be aware of when parties refuse to execute documents as ordered by the court, it is questionable whether it can be used to recover transferred assets by use of summary proceedings. Since title in your case is in one of the parties, this should not be an issue.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.

Under the new FEHA regulations, California employers must ensure that they have proper procedures in place to investigate claims of discrimination, harassment or retaliation that will meet the new standards. These new regulations require that all allegations of misconduct will be addressed through a fair, timely, and thorough investigation, and that the investigation be conducted by qualified personnel.

To be sure you know how to proceed when such an investigation is needed, join us for our upcoming investigations seminar that will take you through all the steps and considerations:

Last week the California Supreme Court issued a decision that changes the way California employers do business. In Dynamex Operations West, Inc. v. Superior Court, the Court held that a three factor test called the “ABC test” must be applied to determine if an independent contractor is actually an employee subject to the California Wage Orders. The Court described the test as follows: “Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

I won’t lie to you: the new California Supreme Court case is a pretty devastating case for employers in California. It goes against all of the tests currently used by various California and federal government agencies by setting a higher standard which is both simple and rigorous. While it has not yet been applied to withholding obligations, I see no real reason to draw a distinction between the independent contractor tests used by the Employment Development Department and other state agencies and the wage and break standards addressed by the decision. Indeed, the ABC test is easier to apply and will undoubtedly result in more taxes being paid to the state. I would therefore expect the EDD and other California agencies to issue new standards and to begin following this case law in the future.

So what does this mean to California employers now? Any independent contractor could use this case to file a claim against any employer for meal and rest breaks, overtime, or unpaid minimum wages, depending on what the contractor did for the business, with the California Labor Commissioner (the Division of Labor Standards Enforcement) or in a court of law. Also, any independent contractor that files a claim for unemployment insurance benefits could trigger an inquiry or audit by the EDD. I would therefore urge that employers use this case as an opportunity to review each independent contractor relationship and make some hard decisions about whether the person is properly categorized as an independent contractor.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2018. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.

]]>Employment Law Reporter May 2018: No Good Deed Goes Unpunished – California Supreme Court Decision May Change the Way Employers Calculate Overtimehttp://www.ecjlaw.com/employment-law-reporter-may-2018-no-good-deed-goes-unpunished-california-supreme-court-decision-may-change-way-employers-calculate-overtime/
Thu, 03 May 2018 15:30:46 +0000http://www.ecjlaw.com/?p=135046Continued]]>California is a difficult landscape for employers, and last month, the California Supreme Court made that landscape all the more difficult. In a case called Alvarado v. Dart Container Corp., the California Supreme Court issued a decision that determines how to calculate overtime when a non-exempt, hourly employee is paid a flat-sum bonus. The decision veers away from the well-publicized federal Fair Labor Standards Act (FLSA) method and, brace yourself…the Alvarado ruling applies retroactively.

Since the decision fundamentally changes the way in which overtime is calculated, employers should read on with care to understand how the new retroactive interpretation will be applied.

The Alvarado Class Challenges Overtime Rate Calculations

Hector Alvarado, a food service worker, on behalf of himself and on behalf of other employees pursuant to the Private Attorneys General Act of 2004, alleged that their employer, Dart Container Corporation of California, underpaid overtime compensation for weeks in which they had earned a bonus. Dart paid its employees a flat-sum “attendance bonus” for completion of full shifts on Saturday or Sunday, the least popular workdays of the week. In calculating each employee’s overtime rate of pay, Dart followed the federal FLSA method. Specifically, Dart included each employee’s bonus compensation in calculating each employee’s total earnings and included each employee’s overtime hours in calculating each employee’s total hours worked. Dart then divided each employee’s total earnings by total hours worked to derive the regular rate of pay for purposes of calculating overtime compensation. Seems logical, right? The California Court of Appeal agreed, siding with Dart.

California Law Leaves Open Questions

But then California’s Supreme Court examined the issue. To give some background, California overtime law entitles non-exempt, hourly employees to 1 1/2 times their “regular rate of pay” for work in excess of eight hours per day or 40 hours per week and for any work performed on a seventh consecutive workday. The “regular rate of pay” is a term of art that cannot be equated to an employee’s hourly wage rate. The regular rate of pay must include compensation that is not attached to hours worked and, for this reason, can fluctuate from week to week. Non-hourly compensation that must be factored into the “regular rate of pay” includes any bonuses earned that are non-discretionary (i.e. Dart’s “attendance bonus”).

The dispute in the Alvarado case stemmed from how to factor Dart’s flat-sum “attendance bonus” into the calculation of each employee’s regular rate of pay for determining overtime compensation. Plaintiff Hector Alvarado, on behalf of himself and the class, contended that Dart should have divided total compensation not by total hours worked but by regular hours only (i.e., non-overtime hours). Alvarado’s method applied the formula endorsed by the California Department of Labor Standards Enforcement (DLSE).

Recognizing that California law had left the issue open, the California Supreme Court reviewed the following possible divisors for calculating the per-hour value of a flat-sum bonus:

(1) The number of hours the employee actually worked during the pay period, including overtime hours (the FLSA formula used by Dart);

(2) The number of non-overtime hours the employee worked during the pay period (the DLSE formula used by Alvarado); or

(3) The number of non-overtime hours that exist in the pay period, regardless of the actual number of hours worked by the employee.

Alvarado Court Holds That Only Non-Overtime Hours Worked May Be Considered

The California Supreme Court decided that the second option was most appropriate, which was the DLSE method argued by Alvarado. The Court held that, where a flat-sum bonus is awarded that is not tied to production, the regular rate of pay must be calculated by dividing the bonus only by the employee’s non-overtime hours worked during the pay period.

The Court explained that California law differed from the FLSA in that it is more protective of employees than the FLSA. California labor laws also reflect a policy of discouraging overtime work. Bearing this in mind, the Court made the following observations:

The third option of using all non-overtime hours in the pay period would dramatically reduce overtime pay rates for part-time employees who might work less than forty hours in a workweek. Seeing no other basis for this option, the Court ruled it out and reviewed the other options.

The first option, the FLSA method which includes the total number of hours worked, including overtime hours, would result in a lower regular rate of pay than the second option of the DLSE method using total non-overtime hours worked.

Since Dart’s employees could earn the flat-sum “attendance bonus” without working overtime hours, the DLSE method best reflected the state’s policy of discouraging overtime hours. Stated differently, the DLSE option would eliminate an incentive for employers to encourage employees to work more overtime hours in order to give employees a lower rate of pay for overtime hours worked.

Having determined that the DLSE method guaranteed the highest regular rate of pay and hence the highest overtime rate, the Court held that Dart failed to properly compensate employees for overtime compensation during pay periods where the employee earned the “attendance bonus.”

Dart urged the Court at oral argument to apply its decision prospectively only since Dart had reasonably relied upon the FLSA method of calculation. Although several justices noted the uncertainty created by California’s unclear authority in this area, the Court rejected Dart’s request and held that its decision applied retroactively.

Navigating Alvarado’s Aftermath

Because the Alvarado ruling applies retroactively, employers who pay flat-sum bonuses who have relied upon the FLSA method of calculating overtime are at high risk of exposure to claims for unpaid wages, penalties, interest, and attorneys’ fees, as well as various related California statutory claims. Going forward, any employers that pay bonuses to their non-exempt, hourly employees should have their practices reviewed by legal counsel for compliance. Although the California Supreme Court limited its decision to flat-sum bonuses, the decision may be interpreted to affect the treatment of other types of bonuses in overtime calculations. In the wake of Alvarado, the sad truth is that employers must be very careful in paying bonuses or other forms of non-discretionary pay since these payments open them to the risk of being sued for not calculating overtime compensation properly. As the old adage goes, no good deed goes unpunished.

Why the Fuss About ICOs and Crypto Tokens?

Sander C. Zagzebski, Partner in the Business and Corporate workgroup at Ervin Cohen & Jessup LLP, gives his thoughts on entrepreneurs and investors in the rapidly evolving crypto market.

Opinions vary wildly about cryptocurrency. Best friend of Bill Gates and legendary investor Warren Buffett says cryptocurrencies “will almost certainly end badly,” and notorious hedge fund manager and Argentina nemesis, Paul Singer, considers crypto “one of the most brilliant scams in history,” showing the “limitless ignorance of swaths of the human race.” Ouch! On the other hand, Peter Thiel, co-founder of PayPal and early investor in Facebook and Palantir, is reportedly making big investments in crypto tokens, while Twitter co-founder and CEO Jack Dorsey is equally bullish on the future of crypto and reportedly believes bitcoin (the first crypto token) will become the world’s single currency within ten years.

Last year, creative entrepreneurs raised billions of dollars selling new species of crypto tokens to the public in so-called initial coin offerings (or ICOs) while headlines instead focused on the trading price of bitcoin and billionaires bickered over its significance, as securities regulators and financial industry watch dogs seemingly struggled to make sense of it all. Very recently, though, that has changed, with ICO promoters now reportedly receiving subpoenas by the dozen as the regulatory watch dogs have finally started baring their teeth. With all the ink spilled on bitcoin, other crypto tokens, and ICOs, what now to make of all the fuss?

First, Highly Abbreviated Background

In 2008, an author or authors using the pseudonym Satoshi Nakamoto published the first crypto “white paper” entitled Bitcoin: A Peer-to-Peer Electronic Cash System on the bitcoin.org website, introducing to the world a digital (or “virtual”) currency that operates on a distributed ledger system relying on cryptographic proof (rather than trust or a disinterested third party) to complete transactions. In May 2010, developer Laszlo Hanyecz purchased two pizzas in exchange for 10,000 bitcoin, which reportedly marked the first use of bitcoin in commerce. From those humble beginnings (at current prices, Mr. Hanyecz’s pizzas cost him tens of millions of dollars!), bitcoin and more recently other crypto currencies and tokens have exploded in popularity and value to such an extent that the Federal Reserve is now reportedly concerned about its impact on the stability of the entire financial system.

As bitcoin increased in popularity and value, it didn’t take long for other crypto tokens to be developed. Some of these other digital “coins” (coins are generally tokens used as digital or virtual currencies or money substitutes) include Litecoin, Ether, ZCash, Dash and Ripple. Developers have also created tokens that, rather than simply acting as a store of value or medium of exchange, give the holder of the tokens some functional value or rights. These functional tokens are often referred to as “utility tokens” to distinguish (or to attempt to distinguish) them from digital currencies or, more importantly as discussed below, securities. Some developers of tokens, particularly utility tokens, began raising significant sums of money selling those tokens in ICO crowd sales to large numbers of investors with only very limited disclosure to those investors in the form of a published “white paper.” While ICOs in some form had been around for several years, the number of ICOs and amounts raised from ICOs skyrocketed in 2017 and attracted the attention of U.S. and international regulators.

In May 2010, developer Laszlo Hanyecz purchased two pizzas in exchange for 10,000 bitcoin, which reportedly marked the first use of bitcoin in commerce.

The Big Question: Are Crypto Tokens Securities?

Whether the SEC should even care about ICOs depends almost entirely on whether the applicable tokens are “securities” within the meaning of U.S. securities laws. In July 2017, the SEC made its first significant statement on crypto tokens when it published a “report of investigation” relating to a decentralized autonomous organization called The DAO, claiming that it had violated securities laws by failing to register the offer and sale of its DAO Tokens. The SEC applied the textbook test in the over 70-year-old Supreme Court case SEC v. W.J. Howey Co. and concluded that the DAO Tokens were investment contracts under the Howey test, and therefore securities.

The SEC’s DAO Report, while significant, was not overly concerning to practitioners. After all, The DAO was really in essence a virtual private equity fund or hedge fund. As such, the DAO Tokens were functionally very similar to more traditional equity securities, and securities lawyers had already assumed that virtual “security tokens” like the DAO Tokens would be treated as securities by regulators.

What About “Utility Tokens”?

The SEC’s analysis in its DAO Report left unanswered the question of whether utility tokens could be deemed to be securities. Many securities law practitioners saw a significant distinction between security tokens like the DAO Tokens and utility tokens that give their holders significant rights unrelated to the trading prices of the tokens, and had taken the position that utility tokens were not securities under the Howey test. A number of token crowd sales were completed without SEC registration as a result of this distinction.

On November 26, 2017, the New York Times reported that Professor Joseph Grundfest, an influential law professor and former SEC Commissioner, was “horrified” by ICOs, calling them “the most pervasive, open and notorious violation of federal securities laws since the Code of Hammurabi.” On December 11, 2017, the SEC ordered Munchee Inc., developer of the MUN token which was characterized as a utility token, to cease its token crowd sale because the MUN token was an unregistered security. While the MUN token was clearly designed to have functionality to the holder beyond simply its store of value, the SEC paid particular attention to the manner in which the MUN token was sold and observed that the token was sold as an investment rather than a functional instrument.

Munchee was the first time the SEC elected to proceed against a utility token. That said, it should also be noted that the SEC’s Munchee order was the result of a very favorable settlement (Munchee Inc. was allowed to return the investors’ money and escape any significant penalty) and doesn’t appear to have been strongly challenged. So observers were left to wonder whether the SEC had gone “full Grundfest” on utility token ICOs or were taking a softer approach.

The SEC Flexes Its Muscles

On the same day the SEC published its order in the Munchee case, SEC Chair Jay Clayton published an unusual personal statement on ICOs which, among other things, openly questioned whether many utility tokens should be deemed to be securities and said “by and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.” In addition to the Munchee order and Chairman Clayton’s statement, it has now been reported that the SEC has recently issued dozens and possibly in excess of 100 subpoenas related to ICOs. So it seems safe to say that the SEC is no longer comfortable with its prior wait-and-see attitude.

Still No Definitive Answers From SEC or Courts

Regulatory action should have been expected by all but the most naïve of true crypto believers, yet it remains unclear whether the SEC believes all utility tokens are securities under the Howey test and, if so, whether courts will agree. Clearly many utility tokens were sold more on their investment potential than on their non-investment utility features. It is also clear that some ICO hopefuls have built trivial utility features into their security tokens in a transparent effort to avoid being deemed a security. The Munchee order likely puts a stop to some of the more aggressive tactics of token promoters, but it fails to clarify when, if ever, a legitimate utility token will not be considered a security in the eyes of the SEC.

What Does This Mean for Entrepreneurs?

The SEC’s latest actions mean ICO promoters are well advised to pay particular attention to complying with securities laws in connection with any crypto token sale. Although outside the scope of this article, there are a few different approaches to consider in this regard. While this will likely increase legal and compliance costs, likely require more significant disclosure and certainly impact timing, it is nonetheless preferable to the regulatory alternative, at least until the SEC and probably the courts weigh in with additional guidance.

After a big year in 2017, developers continue to push forward with ICOs although the SEC has begun to push harder on the brakes and courts have yet to consider whether utility token crowd sales constitute unregistered public offerings of securities. The crypto legal landscape is developing rapidly. The only thing we now know with certainty is that there’s a lot of uncertainty. Proceed with caution.

Sander Zagzebski is a partner in the Business and Corporate workgroup at Ervin Cohen & Jessup LLP. For more information or questions on this article, please contact Sander at szabzebski@ecjlaw.com. This article originally appeared in C-Suite Quarterly, April 18, 2018.

]]>EEOC Extends EEO-1 Filing Deadlinehttp://www.ecjlaw.com/eeoc-extends-eeo-1-filing-deadline/
Thu, 26 Apr 2018 15:30:59 +0000http://www.ecjlaw.com/?p=135036Continued]]>All employers with 100 or more employees, affiliated companies who collectively employ 100 or more employees, and government contractors with 50 or more employees are required to file EEO-1 reports annually with the Equal Employment Opportunity Commission or, in the case of government contractors, the Office of Federal Contract Compliance Programs. The report requires company employment data to be categorized by race/ethnicity, gender and job category. These reports are usually due by March 31st of the next calendar year. For 2017, however, the filing deadline has been extended to June 1, 2018. The extension may be the result of delays caused by manual processing related to certain company activities, such as mergers and acquisitions, which has delayed use of the EEOC online reporting system.

Both the EEOC and OFCCP have used EEO-1 data since 1966. According to the EEOC, the EEO-1 Report is used by the agencies to collect data from private employers and government contractors about their women and minority workforce. The agencies also use the EEO-1 Report data to support civil rights enforcement and to analyze employment patterns, such as the representation of women and minorities within companies, industries or regions.

This blog is presented under protest by the law firm of Ervin Cohen & Jessup LLP. It is essentially the random thoughts and opinions of someone who lives in the trenches of the war that often is employment law–he/she may well be a little shell-shocked. So if you are thinking “woohoo, I just landed some free legal advice that will fix all my problems!”, think again. This is commentary, people, a sketchy overview of some current legal issue with a dose of humor, but commentary nonetheless; as if Dennis Miller were a lawyer…and still mildly amusing. No legal advice here; you would have to pay real US currency for that (unless you are my mom, and even then there are limits). But feel free to contact us with your questions and comments—who knows, we might even answer you. And if you want to spread this stuff around, feel free to do so, but please keep it in its present form (‘cause you can’t mess with this kind of poetry). Big news: Copyright 2018. All rights reserved; yep, all of them.

If you have any questions about this article, contact the writer directly, assuming he or she was brave enough to attach their name to it. If you have any questions regarding this blog or your life in general, contact Kelly O. Scott, Esq., commander in chief of this blog and Head Honcho (official legal title) of ECJ’s Employment Law Department.